LONDON, July 26 (Reuters) – The prospect of one other Russian fuel provide minimize knocked the euro decrease on Tuesday, whereas greenback positive aspects have been tempered by mounting uncertainty over the U.S. Federal Reserve’s policy-tightening path after this week’s anticipated rate of interest rise.
European Union international locations have been getting ready to approve an emergency proposal to curb fuel demand, the prospect of which despatched the one foreign money and German bond yields decrease and hit German shares learn extra .
“It is turning into a extra mainstream view that the value to pay for supporting Ukraine in opposition to Russia shall be fuel rationing,” mentioned Rabobank senior strategist Lyn Graham-Taylor.
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“All this provides to the recession and inflation story.”
Russia mentioned on Monday it could minimize fuel flows to Germany through the Nord Stream 1 pipeline to 33 million cubic metres per day (bpd) from Wednesday. That’s half of present circulation, which is already solely 40% of regular capability. learn extra [
By 1045 GMT, the euro was down 0.7% at $1.0142 and against the pound it had lost 0.3% at 84.6 pence , . It also shed 0.8% against the Swiss franc, plunging to a new seven-year low around 0.977 francs .
The euro remains above parity versus the dollar, hit earlier this month, but ING Bank strategist Francesco Pesole warned that traders could start repricing rate hike expectations from the European Central Bank.
Money markets now see a 39 bps ECB rate hike in September, versus 50 bps last week and see around 100 bps by year-end, which Pesole says is too hawkish.
“The Russian gas story is the black swan risk, a constant threat,” he said.
“Even if gas flow is not completely shut down and it doesn’t come to rationing, a lot of damage has already been done to the European economy.”
Citi analysts agreed, noting Monday’s dismal IFO business survey from Germany “was most likely driven by mere uncertainty about the future of Russian gas supply”.
The latest supply reduction “will at the very least keep that uncertainty elevated”, they added.
The dollar, meanwhile, ticked up, rising 0.6% at 107.08, a four-day high against a basket off currencies, though it remains more than 2% below the 20-year highs of 109.29 hit less than two weeks ago .
The U.S. Federal Reserve starts a two-day meeting later in the day and will almost certainly deliver a 75 bps rate rise. But traders are assessing whether softer growth may see it signal a slower rate hike pace ahead.
Futures tied to the Fed’s policy rate show rates peaking in January 2023, a month earlier than the February reading they gave last week, while long-dated Treasury yields have fallen some 80 basis points off mid-June highs.
Pesole said traders had cut excessively ‘long’ greenback positions as they re-assessed U.S. terminal rates.
However, most analysts still retain a bullish dollar view, with global economic slowdown fears reinforced by soft data prints and Monday’s profit warning from U.S. retailer Walmart (WMT.N) read more .
“There is less scope for dovish repricing at the Fed compared to the ECB… Fed pricing is more or less in line with the dot-plot and the inflation/growth outlook,” Pesole added, referring to the chart recording each Fed official’s interest rate projection.
Elsewhere, commodity prices had allowed the Australian dollar to reach a one-month high of $0.6984 before dollar strength knocked it back to $0.6943.
Wednesday’s inflation data may show consumer prices (AUCPIY=ECI) rising 6.2% year-on-year, the fastest in more than three decades, which ANZ Bank analysts said could fuel some Aussie upside.
“A 50 bps hike from the (Reserve Bank of Australia) next week is all but a foregone conclusion – the main risk is for a larger hike,” they added.
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Reporting by Sujata Rao and Dhara Ranasinghe: additional reporting by Tom Westbrook in Singapore,
Editing by Susan Fenton and Ed Osmond
Our Standards: The Thomson Reuters Trust Principles.