Euro falls below 99 cents after Russia halts gas supplies to Europe

10 and 5 euro notes.

Adrian Fillon | Nurphoto | Getty Images

LONDON – The euro fell below 99 cents for the first time in 20 years on Monday after Russia said shut down its main gas supply pipeline For Europe indefinitely.

The European Union’s common currency was trading around 0.9915 against the dollar as of 1:00 p.m. London time (8:00 AM ET), having climbed as low as $0.9881 earlier in the day.

The dollar index, which measures the greenback against six major currencies, also broke a two-decade high as the British pound slipped on fears over energy supplies and European economic growth.

On Friday, Russian energy supplier Gazpromo Told It would not resume natural gas supply to Germany via the major Nord Stream 1 pipeline, blaming a faulty turbine. The announcement was made hours after the Group of Seven economic powers agree on a plan To impose price limits on Russian oil.

Next month’s gas price in the Dutch TTF hub, a European benchmark for natural gas trading, was up nearly 30% on Monday morning, at 282.5 euros per megawatt hour.

It comes ahead of a meeting of the European Central Bank on Thursday, when economists expect it to raise its benchmark deposit rate by 0.5 or 0.75 percentage points, which will boost Europe’s ability to meet its energy needs this winter and This is against a backdrop of concern over the possibility of a hit. for growth.

EU Economics Commissioner Paolo Gentiloni said, “We expect Russia to honor the contracts that they have, but even if energy weaponization will continue or increase in response to our decisions, I think the European Union The union is ready to respond.” , told CNBC in the weekends.

“Of course, we have to save energy, we have to share energy, we have [a] High level of storage and we are not afraid of Putin’s decisions.”

Janet Mui, head of market analysis at UK asset management firm Brewin Dolphin, told “Squawk Box Europe” that the prospects for European markets look “very grim” as the reality sinks in that Russia is restricting its gas supply to the region. may continue to do so. ,

“Investors will now be very cautious going forward,” she said. “The very clear implication is that euro assets will be under pressure.”

The flip side, he said, was that the dollar would be stronger against both the euro and the sterling.

The British pound was down nearly 0.2% in the previous session against the dollar at 1.1488 at 1:20 pm London time, followed by Announced that Liz Truss will be the new Prime Minister of Britain,

Truss will now have to deal with the crisis of rising cost of living rising electricity bill,

Sterling fell 4.5% against the dollar in August, its worst month since Brexit, and an analyst forecast That it will “descend to new depths” due to political and economic uncertainty, potentially reaching $1.05 by the middle of next year.

Mui said a stronger dollar could prove deflationary for the US economy, meaning the Federal Reserve doesn’t need to be so aggressive in rates going forward.

“There’s already a lot of bad news coming out in the US market, while in Europe it probably isn’t there yet,” she said.

Viraj Patel, global macro strategist at investment advisor Wanda Research, said many investors are looking to short the euro and European government bonds, which have seen a decline. increase in yield On the expectation of interest rate hike in the last one month.

“These markets are selling on any bad news related to the Russia gas flow narrative, while are reluctant to rally on any modest improvement in the energy crisis,” Patel told CNBC by email.

However, Patel said bad news could turn out to be good news for under-owned European properties.

“The market is appreciating the opportunity for policy intervention by government officials to help mitigate inflation risks on the continent,” he said, meaning the case for the euro to rise to 1.05 against the dollar is now par. Looks like, if not more, a case of falling to 0.95.

Yesterday the German government announced a 65 billion euro package to reduce consumer energy bills and support businesses.