Euro falls due to energy crisis. Interventions by the central bank won’t help either

Euro falls due to energy crisis. Interventions by the central bank won’t help either
Euro falls due to energy crisis. Interventions by the central bank won’t help either

The euro hit a 20-year low on Monday. According to experts, even the intervention of the European Central Bank (ECB) will not be able to compensate for the blow that the European currency received due to the crisis on the energy market, and the euro will probably continue to fall. Reuters writes about it. The eurozone currency fell below $0.99 on Monday. The interruption of supplies by the Nord Stream 1 gas pipeline deepened concerns about the European economy.

Russia’s state-owned gas company Gazprom cut gas supplies through the Nord Stream 1 pipeline on Wednesday. He gave the reason for this due to other maintenance work that was supposed to finish on Saturday morning. But on Friday, Gazprom said that maintenance work revealed an oil leak at the compressor station and that the pipeline would remain out of service as a result.

The weakening euro will be the main topic at the ECB meeting on Thursday, as further decline could further accelerate inflation, which could happen when imports become more expensive. Other sources say that the bank has to monitor the exchange rate of the euro also because gas is traded in dollars and a weakening European currency would make supplies even more expensive.

But even the expected increase in basic interest rates by 0.75 percent will not help much, according to experts. “This big rate hike will do nothing to save the euro. We are facing a recession and geopolitical concerns are rampant,” said Agnès Belaisch, a strategist at the Barings Investment Institute. “In fact, there is a high probability that interest rate hikes will coincide with inflation and recession in 2023,” she added, according to the agency.

US bank Goldman Sachs on Monday predicted the euro would weaken to $0.97 and remain at that level for the next six months as demand destruction from the gas crisis leads to a “deeper and longer decline”. Capital Economics revised its forecast for next year to $0.90, a 9 percent drop from current levels.

The Euro has been inversely correlated with gas prices for several months now, meaning it tends to fall when energy prices rise. Gas prices rose 255 percent in 2022 and jumped 30 percent on Monday.

The article is in Czech

Tags: Euro falls due energy crisis Interventions central bank wont

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