Euro falls to fresh two-decade low, dollar exudes strength

U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

SINGAPORE – The euro dropped to a fresh two-decade trough on Tuesday as Europe was buffeted by concerns about energy supply and economic growth, while the dollar held firm against major peers, supported by safe-haven flows.

The euro hit $0.9909, its lowest since late 2002, and was last down 0.29 percent at $0.9914.

Russia will halt natural gas supplies to Europe via the Nord Stream 1 pipeline for three days at the end of the month, the latest reminder of the precarious state of the continent’s energy supply.

Heatwaves in the continent have already put a strain on energy supply and worries are growing that any disruption during the winter months could be devastating for business activity.

“Given the current mood, there’s obviously concerns as to whether that’s going to be three days or whether it’s going to be three years,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).

“Is it really just going to be a three-day maintenance or is this just another example of weaponisation of gas supply into Europe?”

The pound was similarly dragged to a new two-and-a-half-year low of $1.1729, while the Japanese yen steadied at 137.270 per dollar after touching a one-month low of 137.705 earlier in the day.

Chief on investors’ minds for Tuesday will be flash manufacturing PMI readings out in the euro zone and Britain later in the day, which will provide further clarity on the growth trajectory for the respective economies.

Investors are also waiting on minutes of the European Central Bank’s (ECB) last policy meeting on Thursday that are likely to sound hawkish even as the continent faces a downturn in growth.

The risk-sensitive Aussie fell to a one-month low and last traded 0.29 percent lower at $0.6859. The kiwi slid 0.15 percent to $0.6163.

Elsewhere in Asia, China’s yuan fell to an almost two-year low of 6.8552 per dollar.

Against a basket of currencies, in which the euro is the most heavily weighted, the U.S. dollar index stood firm at 109.12, attempting to breach a two-decade high of 109.29 hit in July.

Another reason investors have sought shelter in dollars is the growing risk of a hawkish message from the Federal Reserve’s Jackson Hole symposium, flagged by several officials last week.

“Bonds sold off, led by the front-end,” said analysts at ANZ. “That’s possibly in anticipation that Chair (Jerome)Powell’s speech on Friday is likely to reiterate hawkish messaging.”

Yields on the benchmark 10-year Treasury note have risen about 4 basis points for the week and last stood at 3.0091 percent. Yields on the two-year Treasury note were up similarly up around 4 bps at 3.3018 percent as investors remained on inflation and Fed-watch mode.