- The euro on Wednesday fell to its lowest level against the dollar since April 2017, clinging at around $1.05 against the greenback.
- The currency dropped as Russia halted gas supplies to Poland and Bulgaria in demand for payment in rubles.
- Russia's war against Ukraine has put downside pressure on the euro during 2022.
The euro on Wednesday slipped to its lowest level against the US dollar since 2017 after Russia suspended gas shipments to parts of Europe, highlighting concerns that euro-area ties to Russia will hurt its economic growth.
The shared currency fell by 1.6% during the trading day to buy $1.0531, the weakest price since April 2017. The euro has lost about 7% of its value since the start of 2022.
The currency, which is used by 19 eurozone countries, was shoved lower as European gas prices soared by nearly 30%. Prices jumped after Russia's state-owned Gazprom said it would "fully halt" gas supplies to Bulgaria's natural gas distributor Bulgargaz and Poland's PGNiG "due to their failure to pay in rubles."
Russian President Vladimir Putin in March ordered "unfriendly countries" to pay for Russian gas using its official currency although the contracts generally required payment in dollars.
Europe gets around 40% of its gas supplies from Russia, making the region highly energy-dependent on Moscow.
"It seems that the weaponization of its energy supplies by Russia has now begun, possibly driven by previously reluctant members of NATO getting on board and supplying heavy weapons to Ukraine. Germany has already stated it could painfully manage if Russia banned energy exports," said Jeffrey Halley, senior market analyst at Oanda in a note. "If this is just the start of further energy escalation by Russia, the European Union faces challenging times ahead."
He said the EUR-USD pair "has now well and truly broken its 1985 trendline support and if Russia decides to play its gas supply card, a move below parity is on the cards."
Europe is dealing with surging energy prices in the wake of the war Russia started with Ukraine in late February. "Large increases in commodity prices and compounded supply-side disruptions will further fuel inflation and cut into households' incomes and firms' profits," the International Monetary Fund warned last week.
The international financial organization slashed its 2022 euro-area growth projection to 2.8% from 3.9% set in January, saying the conflict will have "severe economic consequences for Europe, having struck when the recovery from the pandemic was still incomplete." The IMF also cut its 2022 global growth forecast to 3.6% from 4.4%.
"Russia's war in Ukraine continues to unnerve investors. There is a possibility that other countries could be hit next if they refuse to buy Russian gas supplies in rubles," said Fawad Razaqzada, market analyst at City Index, in a note. "Incoming European macro data has not been great, either," with the closely watched Gfk consumer sentiment survey in Germany sliding to -26.5 when -16.1 was expected, he said.
