Title: Dollar Soars As Euro Falls Below 0.99; Worry of Energy Shortages Weigh

Sep 05, 2022 03:22AM ET

By: AnalysisWatch

The US dollar rose to a new 20-year high in early European trading on Friday, while the euro fell to its lowest level since 2002 after Russia halted gas supplies to Europe, sparking fears of energy shortages as winter approaches.

At 03:20 GMT, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.5% higher at 110.020, having earlier climbed as high as 110.255, its highest level in 20 years.

The dollar has been in demand recently on expectations that the Federal Reserve will continue to aggressively tighten monetary policy, especially after Friday's release of better-than-expected nonfarm payroll data.

Futures markets have priced in a more than 50% chance that the Fed will raise rates by 75 basis points at its September meeting.

However, the main driver of today's moves was the weak euro, which accounts for more than 50% of the dollar index value.

EUR/USD fell more than 0.5% to 0.9897, dropping below 0.99 for the first time since 2002, after Russia decided to indefinitely halt gas supplies through its main pipeline to Europe, sparking concerns about energy rationing when temperatures start to drop on the continent.

The European Central Bank meets later this week and is widely expected to raise interest rates as inflation in the eurozone is fast approaching double digits and policymakers have begun to worry that high prices are taking firm root.

Still, significant rate hikes appear to be largely priced into the euro, and it is questionable how far the central bank can go with its policy of tightening rates if the energy crisis seriously disrupts economic growth in the region.