Euro Falls Below 0.99 Dollar After Russia Stops Gas Supply To Europe

The euro plunged below $0.99 on Monday for the first time since the end of 2002, as the European currency suffered from fears for the European economy after the announcement on Friday of the complete shutdown of the Nord Stream 1 gas pipeline by the Russian Gazprom. 

The euro fell 0.45% to 0.9909 dollars on Monday around 09:00 GMT, after falling to 0.9878 dollars, its lowest since December 2002, the year it was put into circulation. Since the beginning of the year, the European currency has lost 13% against the dollar.

The G7 countries targeted Russia's energy windfall on Friday by agreeing to cap the price of its oil, prompting a reaction from Moscow that shook Europeans by announcing that the Nord Stream 1 gas pipeline, vital for energy supplies in Europe, would be completely shut down until a turbine was repaired.

The shutdown is considered, from a technical point of view, unjustified by the turbine manufacturer Siemens Energy. "When Russian President Vladimir Putin recognized the breakaway regions of eastern Ukraine and sent in 'peacekeeping' troops in late February, the euro-dollar had fallen below $1.15", and " with each escalation of the conflict, armed or energy, the euro has given up a little more ground”, recalls Kit Juckes, analyst at Societe Generale.

The jump in gas prices and the lack of energy that is looming this winter is undermining the budgets of consumers and businesses alike and threatens to plunge the euro zone into recession.

After brushing its historic record of 345 euros per megawatt hour on August 26, set in March at the start of the war in Ukraine, the Dutch TTF futures contract, a benchmark for the natural gas market in Europe, had plunged last week. It was up again by more than 30% on Monday morning. In this context, the prospect of a marked tightening of monetary policy by the European Central Bank (ECB) at its meeting on Thursday was not enough to strengthen the euro.

The dollar continues to benefit from its status as a safe haven, which "more than offsets a slightly less enthusiastic than expected employment report on Friday", commented Lee Hardman, analyst at MUFG. It is difficult to predict how far the decline of the euro could lead it, while the currency remains for the moment far from its historical low of 0.8230 dollar in October 2000. "Some of the bad news is already priced in, but that may just limit the downside; the direction of the move remains down," Juckes warns.

The pound sterling also faltered, the United Kingdom being particularly vulnerable to fluctuations in the price of gas, the energy on which the country depends.

The British currency fell 0.17% to $1.1490 after falling to $1.1444, a new low since the March 2020 lockdown and the shock of the start of the pandemic. The country awaits the announcement on Monday of who will succeed Boris Johnson in Downing Street, in the midst of the cost of living crisis in the United Kingdom, where soaring energy prices threaten to plunge two thirds of British households in precariousness.

The favourite candidate, the very Thatcherite Liz Truss, has so far refused to promise direct aid to households, calling it "band-aids", but press reports seem to indicate that she would now be in favor of a freeze on energy price caps. “Markets will scrutinize all proposals on tax and spending, aid to households and businesses is crucial to restore the attractiveness of investment in the United Kingdom”, comment analysts at Sucden. If the British pound goes below the threshold of 1.1412 dollars, it will move to its lowest since 1985.