The euro fell below $1.06 for the first time in five years on Wednesday, against a strengthening US currency amid growing concerns over energy security and slowing growth in China and Europe.
The euro It fell to a five-year low of $1.05860 after Russia’s Gazprom said it will cut off gas supplies to Poland and Bulgaria as the crisis over Russia’s invasion of Ukraine deepens. The European currency was down 0.3% at $1.0607.
The single currency has fallen more than 4% so far in April and is headed for its worst monthly loss in more than seven years, as uncertainty around the war in ukraine and the measures of lockdown in china have led traders to dump the euro in favor of the dollar as a safe haven.
China lockdown fears have exaggerated the downside risk for the euro/dollar,” said Jane Foley, head of currency strategy at Rabobank London.
Furthermore, “fears about energy security in Europe have been greatly amplified by reports of Russian gas supplies being cut off to Poland,” he added.
Meanwhile, the US dollar index, which measures the performance of the greenback against a basket of six currencies, rose 0.3% to 102.7, after hitting its highest since the first days of the pandemic.
Also supporting the dollar index is the fact that interest rates are rising faster in the United States than in any other major economy.
“It seems that the United States will be less affected than other countries, especially Europe and Japan, by the increase in energy prices. As a consequence of the latter, the Fed (Federal Reserve) remains the most hawkish central bank and the dollar remains well supported, even if it remains quite overbought,” said Jeremy Stretch, head of G10 currency strategy at CIBC.
Elsewhere, the Chinese yuan took a breather after falling to its lowest level in 13 months on Monday, stabilizing at 6.5500 per dollar. The data showed that Chinese industrial profit growth accelerated in March.
The dollar strengthening it also dented the yen’s attempted rally, which had enjoyed some support thanks to safety-seeking flows and positioning on the risk of a policy change. The yen was trading 0.7% lower at $127.90.