Exchange Rates UK News
Euro / Dollar Exchange Rate Collapses
James Elliot
28 Apr 2022
The Euro faces a number of significant problems, with the latest Gazprom news only the latest in a long line of negative drivers.
Euro Collapses
EURUSD has been supported in recent weeks by a technical trendline running through the 2016 low and the 2020 lows – it led to the bounce in March and another last week but finally broke this week. Not even the 2020 lows at 1.063 provided any support on Wednesday’s collapse and EURUSD just traded below 1.05 on Thursday for the first time since April 2017. More and more traders and analysts are now talking of targets at parity.
“The FX options market assigns a 35% probability to EUR/USD trading 1.00 at any time before year-end. This is up from 25% earlier this week and just 15% a couple of weeks ago,” observed ING on Thursday.
The Euro has been facing a number of challenges, but the final straw this week comes from Russia’s Gazprom cutting off gas supplies to Poland and Bulgaria after the countries refused to pay in Roubles. It has threatened to do the same to other countries, and gas prices have soared higher from already elevated prices. Europe’s energy crisis is deepening.
Such is the need for Russian gas supplies, it looks like suppliers will meet Russian demands and pay in Rubles, although the European Commision has not given the green light for this.
“Ten European companies have already opened the accounts at Gazprombank needed to meet Russia's payment demands, according to Bloomberg, and four European buyers have already paid for gas in roubles.
Sources told Reuters many companies were waiting for clearer guidance from the European Commission before opening accounts at Gazprombank, but that time was running out,” reported Reuters.
This particular problem may therefore have a fairly easy solution, but paying in Rubles would show the world that Russia is winning the war of sanctions.
Unfortunately for the Euro, the energy crisis is only one of the negative drivers pushing down prices. The ECB is in a bind as inflation is starting to weigh on economic activity but with the economy in such a fragile state they can’t make any aggressive policy changes to combat it. There has been some talk of a rate hike in Q3, and as early as July, but the timetable is non-specific. Even if there was a rate hike in July, the ECB will lag the Fed significantly and there is no option of an early, aggressive assault on inflation like the Fed are planning. This means inflation could drag on much longer in Europe and may get out of the ECB’s control (if it’s not already). This is not a healthy environment for the economy and the Euro looks set to continues its downtrend.
