The European Union adopted emergency measures on Monday to help with the rising cost of energy after Russia cut off a major gas pipeline to the region, which caused the euro to drop further.
The euro dropped by 0.5% to a 20-year low of $0.9900 as the market anticipated a larger risk of a European recession.
Due to economic volatility and anxieties induced by the situation in Ukraine, the value of the euro has been falling against the dollar since the beginning of the year.
Russian gas giant Gazprom announced on Friday that the Nord Stream 1 pipeline would remain offline indefinitely, despite previous plans to resume operations over the weekend.
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Germany has announced plans to spend 65 billion euros ($64.7 billion) to shield people and businesses from rising costs, while Finland and Sweden have offered liquidity guarantees to keep power providers operating.
Due to the consequences of the region’s economic slowdown and the terms of trade shock, senior economist at Capital Economics Jonas Goltermann predicted that the euro and the pound would hit $0.90 and $1.05 versus the dollar, respectively, in 2019.
Analysts believe that Germany will need to cut consumption by 15% so that gas storage tanks don’t run dry. Rationing is a real possibility since even if gas storage tanks were full to capacity, they would only last for around 2.5 months.
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