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After Russia announced that its major gas supply pipeline to Europe will remain closed, European market indices slumped on Monday, the euro sank below 99 cents for the first time in twenty years, and European gas prices spiked.

On Friday, Russia canceled the Saturday deadline and did not provide a new timeline for reopening. This delayed gas delivery. Businesses and families in Europe were already feeling the effects of soaring energy costs, and this news only made matters worse. On the opening of the European gas market, prices increased by as much as 30 percent.

As the European energy crisis has compounded the consequences of increasing inflation, the Euro dropped to below 99 cents vs the US Dollar in early trade on Monday, the worst decrease in two decades.

At 9:25 a.m. UAE time on Wednesday, the single currency was worth $0.9886 to one US dollar. The euro first entered actual circulation in 2002.

For the previous two weeks, the euro has traded at or near parity with the dollar. As Europe and Russia are at odds with Moscow's conflict in Ukraine, the ruble has fallen more than 12% versus the dollar this year. These factors have been exacerbated by record-high inflation, poor consumer confidence, and an energy crisis. On Sunday, Germany promised almost $65 billion in aid to shield Germans from price hikes.

Liquidity guarantees for utilities have also been established in Finland and Sweden. The economics minister of Finland expressed concern about a potential "kind of a Lehman Brothers" in the energy sector, referencing the 2008 failure of the fourth-largest U.S. investment bank at the time.

Euro And European Stocks Dip Down

According to media articles, the three-day maintenance shutdown of Nord Stream 1 was scheduled to end on Saturday morning. However, Gazprom has announced that the supply route would remain restricted until further notice owing to a rupture in the pipeline. Meanwhile, analysts predict that gas prices will hit record highs this week since they have soared by about 400% across Europe over the last year as a result of reduced supply from Russia after the outbreak of conflict in Ukraine.

Moreover, a number of UK businesses have said that price increases have already compelled them to restrict production or eliminate employment. According to Michael Hewson of CMC Markets, "Russia's actions on Friday in permanently blocking the pipeline might see additional upward pressure on European and UK natural gas prices when markets reopen today," following large drops in pricing last week when UK natural gas prices plunged 39% and European prices fell 33%.

Russia has cut or halted supplies to various European nations in response to the imposition of economic sanctions over the Kremlin's invasion of Ukraine, leading to a spike in energy prices across the continent.

The Kremlin claims that European sanctions prevented the return of a Siemens turbine that had been undergoing maintenance in Canada, therefore reducing supply through Nord Stream.

According to the International Energy Agency, in 2021, EU member states bought 155 billion cubic meters of natural gas from Russia, which was nearly 45 percent of the bloc's gas imports and close to 40 percent of its overall gas consumption.

After the indefinite suspension of the Nord Stream 1 pipeline, Investec oil and gas analyst Nathan Piper said, "We are anticipating record gas prices throughout UK/Europe next week as the effect of long-term constraints of Russia gas supplies is absorbed by the market." Also, he said gas prices will continue to fluctuate and predicted "a rapid surge higher tomorrow towards record 700-800p therm highs," as reported by The Guardian.

Things To Remember

For euro traders, this week is crucial... Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, has indicated that many investors now predict a 75 basis point rate rise from the ECB this week, while others remain to bet on a 50 bps boost, on the notion that the ECB cannot go on big raising rates when the eurozone is challenged by a developing energy crisis and a dramatic decrease in economic activity.

At one point during the session, the pan-European STOXX 600 (.STOXX) index was up by 1 percent, but it gave up all of those gains and ended the day down 0.7 percent as rate expectations rose due to the hawkish comments made by ECB speakers and Federal Reserve Chair Jerome Powell.

George Buckley, an economist at Nomura, has expressed doubt about how much the European countries' rescue programs would help with the current energy crisis. As he puts it, the effect of what is occurring from energy is really massive, therefore I believe the larger danger is that it is just simply not doable - with COVID, you can do a lot to assist but you can't counteract it.

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