Euro falls below $0.99 for first time in 2 decades on Russian gas shutdown

The euro fell below $0.99 for the first time in two decades after Russia shut down a major gas pipeline to Europe, increasing the likelihood of substantial pain for European economies already suffering from an energy price squeeze.

The euro fell as much as 0.7 per cent to a low of $0.9888 in afternoon trading in Asia on Monday, marking the first time the single currency has dropped below the $0.99 mark since 2002.

The sudden drop below the threshold came after Russia indefinitely suspended natural gas flows through the Nord Stream 1 pipeline, further throttling Europe’s energy supplies and intensifying recessionary risks in the bloc.

State-owned Gazprom said the suspension was due to a technical fault.

But the announcement came just hours after G7 countries announced plans to move ahead with a price cap on Russian oil exports in an attempt to reduce revenues flowing to Moscow that could be used to fund its invasion of Ukraine.

Stock futures reflected the worsening outlook for European economies, with the Euro Stoxx 50 tipped to tumble more than 3 per cent when markets opened in Frankfurt and Paris. The FTSE 100 was expected to shed about 1 per cent.

Analysts said any “weaponisation” of Russian gas by cutting off flows through Nord Stream 1 could substantially complicate the European Central Bank’s plans for monetary policy normalisation.

“The ECB’s task is greatly complicated by uncertainty over Russian gas supplies,” said Brian Martin, head of G3 economic research at ANZ, adding that a 0.5 percentage point rise in the ECB’s benchmark interest rate was already priced in for this week. “Moscow’s decision not to restart gas flows via the Nord Stream pipeline raises downside growth risks while increasing the inflation outlook.”

Markets in Asia were focused on tightening Covid-19 restrictions in China, where a host of cities are under lockdown following outbreaks of the virus. Hong Kong’s benchmark Hang Seng index fell 1.6 per cent in afternoon trading, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks shed 0.6 per cent.

The euro hit parity with the dollar in July for the first time in 20 years as investors sought haven assets in a worsening global economic environment.