Euro falls to 20-year low against the U.S. dollar as energy crisis deepens

The euro reflects more bearish sentiment in the global equity and energy ecosystem, as it fell to a 20-year low of 0.9903 against the U.S. dollar. The drop mimics that of major European stock indexes, including the FTSE 100 Index, which lost 0.74% to 7,478.00.

The German DAX PERFORMANCE-INDEX index is down 0.12% to 13,214.57. The overall decline is also modeled by the Asia-Pacific market as well as the U.S. financial landscape. The Nikkei 225 is down 1.19% to 28,452.75, while the Shanghai Component, SSE Composite Index lost a negligible 0.048% to close Asian trade at 3,276.22.

The European oil benchmark price fell 13% overnight as a Kazakh gas pipeline was damaged overnight. The damaged pipeline passed through Russia to supply oil and gas to Europe, and the disruption comes as Russia has scheduled maintenance on its main Nord Stream 1 pipeline, which is expected to disrupt gas supplies to the European area for three days later this month.

Energy costs have become the main driver of rising inflation, especially in the European Union. While the region is so dependent on Russia for the majority of its gas supplies, the ongoing war in Ukraine has shifted the paradigm, with EU leaders torn between extending sanctions and cutting off gas supplies from Russia.

The energy situation has clouded the economic outlook across the Eurozone, and this bearish stance is confirmed by market analysts and the Euro’s fall to a 20-year low.

“Growing risks to Russia’s natural gas supply to Europe cloud economic outlook“, said Edward Bell and Daniel Richards, economists at Emirates NBD.

Global inflation growth and response

In the Eurozone, inflation figures for July have been set at 8.9% in July 2022, up from 8.6% in June 2022 and 8.1% in May 2022. This gradual increase is concerning and, like other economies such as the United States, inflationary growth has forced the European Central Bank (ECB) to raise interest rates, a move that, if not properly contained, can cause an economic recession.

“Europe’s recession is a foregone conclusion, especially as the risks of energy supply disruption remain high” said Edward Moya, senior market analyst for the Americas at Oanda.

Economic sentiment in the EU is also a harsh reality for Americans. Inflation is still high, and despite efforts to keep the inflation number flat in July, the market is still largely jittery about the Fed’s potential response to the still-uncapped inflation.

In the U.S., the goal is to bring inflation down to 2 percent on an annual basis. Attempts to meet this goal could be slightly disruptive to the market, so industry experts around the world are preparing for strategies to remain resilient.