LONDON (CNA) – The euro fell to a seven-year low versus the Swiss franc and hit its lowest point in almost two years versus the United States (US) dollar yesterday as the war in Ukraine lowered expectations of European economic growth.
The European single currency fell 2.1 per cent this week, and was set for its worst week since April 2020. It was down 0.5 per cent to USD1.1010 at 0850 GMT, near its weakest level since May 2020, following news Russian forces seized the largest nuclear power plant in Europe after a building at the complex was set ablaze during fighting with Ukrainian defenders, Ukrainian authorities said yesterday.
Authorities later said the fire in a building identified as a training centre had been extinguished. US Energy Secretary Jennifer Granholm said there were no indication of elevated radiation levels at the plant.
Versus sterling, the euro also hit its weakest level of 82.61 pence since July 2016. It touched its lowest level since January 2015 of 1.0114 against the safe-haven Swiss Franc.
An analyst said the effects of surging energy and gas prices will likely undermine European consumption and economic growth prospects.
“The European Central Bank (ECB) is going to have no alternative but to look through this surge in inflation but the Fed is not going to delay so we will see more monetary divergence again,” said Mike Kelly, head of global multi-asset at PineBridge Investments.
“The dollar should be getting a new spring in its step structurally if things do get worse,” Kelly added.
The US dollar index rose 0.36 per cent to 98.073, after touching its highest level since June 2020 against a basket of peers.
While money markets do not expect interest rate hikes at the ECB’s next meeting, the US Federal Reserve is all but certain to raise interest rates at its March 15-16 meeting for the first time since the coronavirus pandemic.
Fed Chair Jerome Powell repeated his comments that he would back an initial quarter per centage point increase in the benchmark rate. In Ukraine, Russian forces were pressing on with surrounding and attacking cities.
Elsewhere, the Australian dollar continued its advance, helped by the commodities boom, and rose 0.6per cent to a four-month high of USD0.7370 versus the US dollar.
High energy prices in turn have prevented the Japanese yen from benefitting as much from the safe haven flows, as Japan is a net importer of energy.
The yen briefly climbed on the dollar when news of the fire emerged, but later gave up those gains and was little changed at 115.37 per dollar.
