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Euro drops on gas supply concerns

Euro drops on gas supply concerns

The data reinforced reservations surrounding the German and Euro-Zone economy, the Euro quickly reversed an initial dip and posted significant gains on hopes that Russian gas supplies through the Nord-Stream pipeline would increase. The Euro jumped to highs just above 1.0250 before stalling ahead of the New York open. Expectations of further ECB rate hikes also provided an element of Euro support.

After the US open, however, Gazprom announced that there would be a net reduction in supplies to around 20% of capacity from 25% seen since last week’s restart. Supplies at this level would make it extremely difficult for Germany to build up sufficient supplies to meet demand during the winter with expectations that emergency programmes will be put into effect to curb demand which will have an important negative impact on the economy.

The Euro dipped sharply following the announcement but did find some support close to 1.0200 into the European close. Narrow ranges prevailed on Tuesday with the dollar edging lower and the Euro trading around 1.0220 amid further caution ahead of Wednesday’s Federal Reserve policy decision.

The data had little impact with Sterling able to secure net gains on the day. Although confidence in the UK outlook remained weak, Friday’s business confidence data indicated some resilience and there was a reluctance to sell the currency ahead of next week’s Bank of England policy decision.

Sterling advanced to highs around 1.2085 against the dollar before fading to below 1.2050 as the US dollar regained ground while the Euro retreated to around 1.1799 before stabilising. Sterling edged higher on Tuesday with further limited short covering as it traded just above the 1.2050 level against the dollar.

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