Euro Fragile as Fed Hike Looms

The euro was still jittery in this week’s trading after its steepest plunge in two weeks, as a disruption in Russian gas supplies sent energy prices soaring.

The euro fell about 1% to $1.0108 overnight, its biggest fall since early July. Europe's growth prospects remain closely linked to Russian gas supplies, which have become unstable since the start of the Ukraine war.

Gas output along the Nord Stream 1 pipe from Russia to Germany dropped on Tuesday and will fall further on Wednesday.

Last week, European manufacturing data was soft, leading analysts to point out that the downside risks to the eurozone growth and broader growth concerns globally points to even more dollar strength.

The US dollar is reigning supreme as other currencies falter. The latest Federal Reserve monetary policy announcement is due out today. Markets have priced in a 75-basis point hike, with a small, but not insignificant, chance of a supersized 100-basis point raise.

What does this mean for me? 

For Europe, energy supply is likely to remain a key issue in the coming months. It is expected that the euro will trade below parity against the US dollar on a more regular basis, as questions around gas supply continue to swirl.

Analysts expect the US dollar to remain supported by safe-haven flows over the longer term, amid a darkening global outlook, of which Europe is very much a part.