Dollar gains, euro falls as energy drives currency swings

NEW YORK: The dollar rose to fresh 20-year highs on Wednesday and the euro tumbled to a new two-decade low as rising energy prices and potential shortages cast a long shadow over the euro zone’s economy.

The dollar index, which tracks the greenback versus a basket of six currencies, shot above 107, while the euro tumbled below $1.02, both for the first time since December 2002.

The dollar has strengthened as energy prices are high and the Federal Reserve has been raising interest rates more quickly than most other central banks, said Shahab Jalinoos, global head of macro trading strategy at Credit Suisse.

“You have traditional macro factors that are driving dollar strength right now rather than a risk-adverse move,” Jalinoos said.

The United States is a net energy exporter, while Germany is running a trade deficit for the first time since 1991, he said.

“High interest rates in the US and a trade shift which is beneficial to the US adds to sustainability of the dollar’s strength,” he said.

The dollar index rose 0.544%, with the euro down 0.87% to $1.0177.

Goldman Sachs raised its natural gas price forecasts, saying that a complete restoration of Russian gas flows through Nordstream 1 was no longer the most likely scenario.

All oil and gas fields that were affected by a strike in Norway’s petroleum sector are expected to be back in full operation within a couple of days, Equinor said on Wednesday.

Analysts expect a quick resurgence in oil prices as supply tightness persists and as front-month spreads have held up despite Tuesday’s price fall.

“It is not only the threat of nondelivery (of gas) that is weighing on the euro,” Moritz Paysen, forex and rates adviser at Berenberg, said.

“The already-high energy costs are a burden. Energy costs in Europe are many times higher than in the US,” he added.

The divergence between central banks’ tightening cycles across the Atlantic remained in investors’ focus.

The euro dropped to its lowest level against the Swiss franc since the Swiss National Bank abandoned its currency cap in 2015.

The single currency was down 0.6% to a fresh 7-year low at 0.9879.

Yen gained a little support from some safety bids after Japanese households’ inflation expectations strengthened in the three months to June, with the ratio of homes expecting price rises over the coming year hitting the highest level in 14 years.

The Japanese yen strengthened 0.16% to 135.67 per dollar.

Bank of Japan has said it would not withdraw monetary stimulus because inflation is due to soaring fuel and raw material costs blamed on the Ukraine crisis and will likely prove temporary.

Bitcoin last rose 0.12% to $20,191.98.