Euro eyes void below parity vs Swiss franc on stagflation shock

Euro eyes void below parity vs Swiss franc on stagflation shock
Euro eyes void below parity vs Swiss franc on stagflation shock
© Reuters. FILE PHOTO: U.S. dollar and Euro bank notes are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. May 7, 2017. REUTERS/Kai Pfaffenbach/Illustration

By Saikat Chatterjee

LONDON (Reuters) – The euro briefly sank below parity versus the Swiss franc for the first time in seven years on Monday and held at a 22-month low versus the dollar as soaring oil prices stoked fears of a stagflationary shock that could hammer Europe.

The conflict in Ukraine and harsh international sanctions on Moscow have sent Russian assets tumbling while prices of the country’s exports such as precious metals, oil and gas have soared at a time when the global economy was already grappling with inflationary pressures.

Europe is the most vulnerable as it imports as much as 40% of its consumption from Russia and the single currency has become increasingly correlated with oil prices — the higher oil climbs, the more the euro falls as investors fret about higher inflation and the blow to the economy.

In early London trading on Monday, the euro was down as much as 0.5% to $1.0874, within striking distance of a low of $1.0822 hit in Asia trade, its lowest since May 2020.

It is down almost 4% since Russia began what it calls a “special military operation” in Ukraine and is not far from testing its 2020 trough of $1.0636.

Oil prices soared again on Monday as the risk of a U.S. and European ban on Russian product and delays in Iranian talks sent prices soaring to the highest levels since 2008.

“This is fuelling demand for the dollar and Swiss franc this morning,” said an FX strategist at a European Bank in London.

“The melt-up in commodity prices ramps up the risk of a stagflationary shock for the euro zone and complicates the policy outlook for the ECB.”

According to Goldman Sachs (NYSE:), a sustained $20 oil rise shock will lower real economic growth in the euro area by 0.6% and by 0.3% in the United States. But in a more adverse scenario if Russian gas shipments via Ukraine are curtailed, then euro area GDP could fall by as much as 1% from gas alone.

The euro also fell to a 15-month low of 124.39 yen and touched its lowest since mid-2016 against the pound at 82.01 pence. Against the , the euro has lost more than 10% over about a month.

Russia’s military will hold fire and open humanitarian corridors in several Ukrainian cities on Monday, the Defence Ministry said, after fighting halted weekend evacuation efforts and civilian casualties from Russia’s invasion mounted.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Leave a Reply

Your email address will not be published. Required fields are marked *

New Brokers
2.8 rating
Buy & sell Crypto in minutes
3.0 rating
Note: Investing involves risks. You can lose your deposit. We advise you to only invest in financial products which match your knowledge and experience.
2.0 rating
Interactive Brokers attracts active traders with low per-share pricing, an advanced trading platform.
4.3 rating
eToro is the world’s leading social trading platform, with thousands of options for traders and investors.
AdonFinance
Risk Warning: The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory or other services by AdonFinance. In addition, the content of the website offers no opinion with respect to the suitability of any security or any specific investment. Trading foreign exchange, stocks, cryptocurrencies and commodities is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against traders. Before any investment with any broker you need to carefully consider your targets, previous experience, and risk level. Forex trading can result in the loss of your money, as a result, you are expressly cautioned that you should never invest or trade with money that you cannot afford to lose. For the avoidance of doubt, AdonFinance's service provides Brokers reviews in the Financial market. AdonFinance, its subsidiaries, agents or affiliates will assume no responsibility whatsoever for your trading activity. © Copyright 2021 AdonFinance