The euro has dropped below $0.99 for the first time in two decades after Russia halted the flow of natural gas through a key pipeline, intensifying the risk of a deep recession.
The currency of the 19-member eurozone was down 0.44% to $0.991 on Monday morning. It had earlier fallen to $0.988, its lowest level since the fall of 2002.
Fears about the global economy sent investors flocking towards the dollar, which is seen as a safe-haven asset. The dollar index was up 0.46% to a 20-year high of 110.04.
Russia announced it was halting the flow of natural gas to Europe through the Nord Stream 1 pipeline indefinitely on Friday, after closing it for maintenance on Wednesday.
State-owned company Gazprom said it would pause flows until it fixed an oil leak in a turbine. Yet many analysts noted the suspension came after G7 finance ministers finalized a deal to try to cap Russian oil prices.
Tensions in Europe have been running extremely high since Russia invaded Ukraine in late February.
Prior to Wednesday, Russia had already slashed the flow of natural gas through Nord Stream 1, which runs into Germany, to just 20% of capacity. The squeeze on energy supplies has sent both natural gas and electricity prices skyrocketing, although they fell last week.
Friday’s closure sent natural gas prices soaring back towards record highs on Monday. Dutch TTF natural gas futures, the European benchmark price, were up 32.61% on Monday to 276.50 euros ($274 per megawatt hour), putting them on track for their biggest daily increase since May.
Many analysts and economists now expect the eurozone economy to fall into a recession in the coming months as households and businesses cut back on their energy use. That’s weighed heavily on the euro, which was down almost 13% from $1.137 at the start of the year.
Meanwhile, the Federal Reserve’s aggressive interest rate hikes have pulled investors back towards dollar assets, sending the greenback soaring and crushing other major currencies. The dollar index has surged roughly 15% this year.
“Offering 2.3% overnight deposit rates and backed by near energy independence and a relatively strong US economy, it should not be a surprise to see the dollar remaining bid,” said Chris Turner, strategist at ING.
Britain’s pound has also come under heavy pressure as the country struggles with its own energy crisis. The pound was down 0.23% to $1.148 Monday, and has dropped more than 15% since the start of January.
Naaem Aslam, a strategist at trading platform Avatrade, said: “it seems like traders are losing their faith when it comes to the Euro-dollar or Sterling-dollar.”
He added: “Consumers are struggling every day and worried about their energy bills. There is no short fix for this, given the nature of the economic health of the EU and UK, and a major disaster could be on the horizon.”