London: On Monday, the euro briefly fell below parity against the strong dollar and was trading at five-week lows, weighed down by fears that a three-day halt in European gas supplies later this month will exacerbate an energy crisis.
The Chinese yuan fell to its lowest level in nearly two years after the central bank reduced key lending rates.
The dollar index, which measures the greenback against a basket of peers, hit a mid-July high as Federal Reserve officials reiterated the Fed’s aggressive monetary tightening stance ahead of the Fed’s Jackson Hole symposium this week.
After Russia announced late Friday a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month, the euro and sterling bore the brunt of the selling pressure against the dollar.
The euro was last down 0.4% at $1.0001, having briefly fallen to its lowest level since mid-July of $0.99895.
According to Jane Foley, head of FX strategy at Rabobank in London, the euro could fall to $0.95.
“European gas prices rose again this morning, highlighting the recessionary risks confronting the eurozone this winter and potentially beyond,” she said.
“The euro’s fair value has been harmed by the energy shock,” said Chris Turner, global head of markets at ING, “meaning that euro/dollar is not particularly cheap even at these levels.”
According to Bundesbank President Joachim Nagel, the German economy, which is among the most vulnerable to disruptions in Russian gas supply, is “likely” to enter a recession this winter if the energy crisis worsens.
Meanwhile, sterling fell to a new five-week low of $1.17875 as the energy crisis emphasised Britain’s cost-of-living crisis.
The US dollar index, which compares the greenback to six rival currencies, rose 0.25 percent to 108.42 after reaching its highest level since July 15.
It rose 2.33 percent last week, its biggest weekly gain since April 2020, as a chorus of Fed policymakers emphasised that more must be done to rein in decades-high inflation.
On Friday, Richmond Fed President Thomas Barkin stated that there is a “urge” among central bankers for faster, front-loaded rate increases.
Money markets currently place a 54.5 percent chance on another massive 75 basis-point rate hike at the Fed’s next meeting on September 21.
According to a Reuters poll, economists are leaning toward a 50 basis-point increase, with recession risks on the rise.
On Monday, benchmark 10-year US Treasury yields briefly surpassed 3% for the first time since July 21.
As yields fell from their highs, the dollar fell against the yen, closing the day at 136.81. The dollar had previously reached its highest level against the yen since July 27.
The dollar also climbed to 6.8436 yuan in onshore trading for the first time since September 2020, after the People’s Bank of China cut one- and five-year loan prime rates, as expected.
This comes after it unexpectedly lowered other key borrowing benchmarks last week.
The dollar reached 6.8645 against the offshore yuan, its highest level since September 2020.