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The euro plummets below 99 cents after Russia stops gas supplies to Europe

10 and 5 euro notes.

Adrien Fillon | Nurphoto | Getty Images

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

The EU’s single currency was trading around 0.991[ads1]1 against the dollar at 10:00 a.m. London time (5:00 a.m. ET), having climbed down from a low of $0.9881 earlier in the day.

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

On Friday, Russian energy supplier Gazprom said it would not resume supplying natural gas to Germany through the central Nord Stream 1 pipeline, blaming a malfunctioning turbine. The announcement was made hours after the Group of Seven economic powers agreed on a plan to implement a price cap on Russian oil.

The gas price for the first month at the Dutch TTF hub, a European benchmark for natural gas trading, was almost 30% higher on Monday morning, reaching 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 from 0 to 0.5% or 0.75% against a backdrop of concerns over Europe’s ability to meet its energy needs this winter and the potential for a blow to growth.

“We expect Russia to respect the contracts they have, but even if the weaponization of energy will continue or increase in response to our decisions, I think the EU is ready to react,” said Paolo Gentiloni, the EU’s economic commissioner. , told CNBC over the weekend.

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

Viraj Patel, global macro strategist at investment consultancy Vanda Research, said many investors sought to short the euro and European government bonds, which have seen a rise in yields in the past month on expectations of rate hikes.

“These markets are selling off on bad news related to gas flows from Russia, while being reluctant to rally on any marginal improvement in the energy crisis,” Patel told CNBC by email.

However, Patel added that bad news could start to turn into good news for under-owned European assets.

“The market is underestimating the chance of policy intervention by government officials helping to reduce stagflation risks on the continent,” he said, meaning the case for a euro rally to 1.05 against the dollar now appeared to be equal, if not greater, than the case for a drop to 0.95.

Yesterday, the German government announced a €65 billion package to reduce consumers’ energy bills and support businesses.

Meanwhile, the British pound traded at 1.1498 against the dollar as Britain prepares to find out who will be the new British Prime Minister. The new premier will be forced to reckon with a growing cost of living crisis fueled by soaring energy bills.

Sterling fell 4.5% against the dollar in August, its worst month since Brexit, and one analyst predicted it would “pluck new depths” amid political and economic uncertainty, potentially reaching $1.05 by the middle of next year.

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