EXPLAINED: Euro Hits New 20-Year Low. Know Reasons Here
Fear of an escalating energy crisis prevails as Russia pulls up its main pipeline to Europe. This had an adverse impact on the Euro, making it slide below $0.99.
The first day of the week experiences a huge drop in the euro to a new 20-year low. This is the result of Russia’s take to shutting an important pipeline to Europe, leading to energy crises. This, further, creates a heavy blow to the country’s economy.
The Euro dropped as low as 0.7 percent to $0.988 from 0.7 in London trading. This, according to facts, is the lowest level since two decades ago.
European stocks also saw a fall. Germany’s Dax is off 2.6 percent, the regional Stoxx 600 index is down 1.4 percent and France’s Cac 40 is down 1.8 percent. Not to miss, London’s FTSE 100 slipped 0.9 percent.
Talking about energy markets, Dutch TTF gas futures rose more than a third to ē284 per megawatt hour.
Finland and Sweden provided government funding for utility companies facing the brunt of heightened collateral requirements on exchanges. They warned that without intervention, energy markets could clutch and perhaps threaten the financial system.
The UK energy sector alerted that electricity generators may also require the support of the government. Rishi Sunak or Liz Truss are all set to be declared as the Prime Minister later on Monday after the Conservative party leadership campaign’s conclusion. Sterling was down 0.1 percent to $1.15 in the latest trading.
Then, Russia suspended natural gas flows via the Nord Stream 1 pipeline, ceasing Europe’s energy supplies and increasing recessionary risks in the bloc.
Analysts at RBC Capital Markets in London expressed that this was once a dreaded probability, but seems to become a reality now.
Spain’s energy and environment chief, Teresa Ribera stated that Russian President Vladimir Putin was “pushing the resilience of European citizens to the limit and undermining confidence in EU institutions”.
Minister for ecological transition, Ribera, expressed that ‘Putin has dynamited the energy market”. This implies that the energy market is damaged and immediate intervention is the need of the hour. It is not working in accordance with the normal rules and the European Union requires to act immediately to cease Russian leaders’ blackmail.
EU energy minister will assemble for the purpose of an emergency meeting on Friday to discuss measures to control spiraling prices of natural gas.
Analysts expressed the recent change in the energy crisis would increase the stakes for European Central Bank policymakers. These policymakers too will be meeting this week.
Various big investment banks, like JPMorgan, Goldman Sachs, and Bank of America stated that last week it was expected the central bank to increase rates by 0.75 percentage points. This is the largest lift since 1999.
The head of G3 economic research at ANZ, Brian Martin said, “The ECB’s task is greatly complicated by uncertainty over Russian gas supplies,”. “Moscow’s decision not to restart gas flows via the Nord Stream pipeline raises downside growth risks while increasing the inflation outlook.”
The UK government bonds and Eurozone were under great pressure on Monday. The yield on Germany’s benchmark 10-year Bund, too, adds 0.05 percentage points to 1.57 percent, while the equivalent Italian yield increased 0.12 percentage points to 3.95 percent. The 10-year gilt yield leaped as much as 0.08 percentage points, touching around 3 percent for the very first time since 2014. This showcases a huge drop in the British debt instrument’s price.
On Monday, the United States market was closed for the Labor Day holiday. This could drop the overall trade volumes, thereby increasing liquidity.
Why Did Russia Stop Gas Pipelines to Europe?
Europe’s energy crisis is witnessing a substantially negative impact as Russia shuts down the North Stream pipeline.
Europe is facing a time of difficulty handling the winter ahead. This is because Russia had shut down the Nord Stream 1 gas pipeline to Germany, once again.
The issue has given birth to fears regarding shortages or perhaps blackouts in the months to come.
Having said that, the Russian authorities deny any of such reasons and say that the pipeline has been shut for repairing a leak.
Do the European leaders believe this? Well, a big No! European leaders reject Russia’s justification and accuse the country of weaponizing energy in a revert to sanctions over the Ukraine invasion.