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Euro fragile as Fed hike looms

by Carl Steward
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Euro plunged due to the fears of Russia cutting gas supplyEuro fragile as Fed hike looms

The euro nursed losses on Wednesday following its largest decline in two weeks, as a decrease in Russian gas supply drove energy costs skyrocketing, while the dollar stayed steady ahead of an expected interest rate hike in the United States later in the day.

The euro sank over 1% overnight to $1.0108, its lowest level since July 11, and remained steady in early Asian trade at $1.0139. Europe’s growth is still sensitive to Russian gas supplies, which have become a serious risk since the outbreak of the Ukraine conflict.

Flows through the Nord Stream pipeline from Russia to Germany decreased on Tuesday and are expected to fall much lower on Wednesday.

Other markets have been relatively quiet ahead of the Federal Reserve’s policy statement at 1800 GMT. The yen remained stable at 136.98 per dollar. The Australian and New Zealand dollars rose somewhat in early trade but remained below Tuesday’s highs. Sterling was trading at $1.2048.


The Australian dollar could climb if inflation data due at 0130 GMT surprises the upside. The headline rate of inflation is forecast to reach a three-decade high of 6.2 percent. The Australian dollar was recently up 0.2 percent at $0.6950, while the New Zealand dollar was up 0.2 percent at $0.6243.

The euro fell by 0.98 percent to $1.012, while the dollar index increased by 0.714 percent to 107.180. The euro was expected to experience its worst daily decline since July 11.

Markets are pricing in a 75-basis-point Fed hike later Wednesday, with a 13% probability of a 100-basis-point boost.

The press conference at 1830 GMT will also be watched for any indication that policymakers’ willingness to raise interest rates further is faltering as growth slows.

Overnight statistics indicated that consumer confidence in the United States had dropped to a nearly one-and-a-half year low, and new home sales were down, while Walmart shares fell as the firm issued a profit warning. Last week’s European manufacturing data was disappointing.

The US dollar index was 107.08, not far from the 20-year high of 109.290 set in mid-July. It rose 0.64 percent overnight, halting a three-session losing streak.

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