Euro plunges to record low as Russia cuts gas supply

The euro fell and was testing a two-decade low on Monday after Russia’s indefinite closure of its main gas supply pipeline to Europe stoked fears of energy shortages, high prices and a hit to growth, while the U.S. dollar index hit a 20-year high.

The euro touched $0.9903 in early Asia, just above last month’s trough of $0.99005. Sterling hit a 2-1/2-year low at $1.1458.

The pound has also been hurt by worries about rising energy prices. In the event that Liz Truss, the British foreign minister, wins the election to replace David Cameron as prime minister, she has pledged to take urgent action to reduce growing energy prices and boost energy supplies.

The yen, at 140.23 per dollar, was under pressure near a 24-year low. The risk-sensitive Australian dollar slid 0.3% and was near a seven-week low at $0.6790.

The U.S. dollar index hit a new two-decade high, briefly topping 110.

Invoking an oil leak in a turbine, Russia postponed a Saturday deadline for the Nord Stream pipeline to begin carrying oil. It happened at the same time that the Group of Seven finance ministers announced a limit on Russian oil prices.

Rodrigo Cattrill, currency strategist at National Australia Bank Ltd, said the impact of an indefinite gas supply cut would be more damaging to the euro.

According to Carol Kong, senior associate for international economics and currency strategy at Commonwealth Bank of Australia, "everything is pointing to a lower euro."

We've heard a lot of bad news about the European economy, and I believe the euro's drop will continue this week.

This week could also see large rate increases. Markets have priced in a probability of roughly 75% for a 75 basis point increase in Europe and a probability of almost 70% for a 50 bp increase in Australia.

Prices for a 75 bp increase in the United States this month retreated somewhat after a mixed jobs report on Friday that contained some signs of easing in the labor market.

Fed funds futures indicate a 55% chance of a 75 bp hike.