Gas crisis sends euro back below parity against dollar

LONDON, Aug 22 (Reuters) – The euro briefly slipped below parity against a robust dollar on Monday and languished at its five-week low, weighed down by concerns that a three-day shutdown of European gas supplies later this month could spark an energy crisis .

The Chinese yuan fell to its lowest point in nearly two years after the central bank cut key lending rates.

The dollar index, which measures the greenback against a basket of peers, rose to a high in mid-July after Federal Reserve officials repeated aggressive monetary tightening this week ahead of the Fed’s Jackson Hole symposium.

The euro and sterling suffered the hardest from selling pressures against the dollar after Russia announced late this month that European gas supplies through the Nord Stream 1 pipeline would be halted for three days. read more

The single currency last fell 0.4% to $1,0001 after briefly falling to its lowest level since mid-July of $0.99895.

Jane Foley, head of FX strategy at Rabobank in London, said she wouldn’t be surprised if the euro fell to $0.95.

“European gas prices rose again this morning, drawing attention to the recession risks facing the eurozone this winter and possibly beyond,” she said.

Chris Turner, Global Head of Markets at ING, said: “The euro’s fair value has been damaged by the energy shock – meaning the euro/dollar isn’t particularly cheap even at these levels.”

Bundesbank president Joachim Nagel told the German newspaper Rheinischen Post that the German economy, one of the most exposed to disruptions in Russia’s gas supply, is “likely” to enter a winter recession if the energy crisis continues to deepen.

Sterling, meanwhile, plunged to a new five-week low of $1,17875 as the energy crisis exposed the UK’s cost of living crisis.

The US dollar index, which measures the currency against six rivals, rose 0.25% to 108.42 after hitting its all-time high since July 15.

It rose 2.33% last week — the biggest weekly rally since April 2020 — amid a chorus of Fed policymakers stressing that more needs to be done to curb decades-long high inflation.

The latest was Friday, Thomas Barkin, president of the Richmond Fed, who said the “urge” among central bankers has been for faster, frontal rate hikes. read more

Money markets currently indicate a 54.5% chance for another super-large 75 basis point rate hike at the Fed’s next meeting on Sept. 21

Economists are leaning towards a 50 basis point gain in a Reuters poll, with increasing recession risk. read more

The benchmark yield on ten-year US government bonds briefly rose above 3% on Monday for the first time since July 21.

As the yields came off their highs, the dollar fell against the yen and was a touch lower for the day at 136.81 . Earlier, the dollar reached its highest level since July 27 against the yen.

The dollar also rose to 6.8436 yuan in onshore trading for the first time since September 2020, after the People’s Bank of China cut prime interest rates for one and five years, as widely expected.

That came after it eased other key lending benchmarks in a surprising move last week.

Against the offshore yuan, the dollar reached 6.8645, also the strongest since September 2020.

Reporting by and Joice Alves; Editing by Ed Osmond and Jan Harvey

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