LDN - Business

Battered euro hits lowest since 2016 vs sterling, oil surge bites

[March 03, 2022] By Dhara Ranasinghe

LONDON (Reuters) - The euro slid to its lowest level in almost six years against Britain's pound and was pinned near 21-month lows versus the dollar on Thursday, as a fresh surge in energy prices heightened worries about the euro area economic outlook.

With Brent crude hitting a nine-year high above $119 per barrel, a dash for resources bolstered commodity-linked currencies. Australia's dollar briefly touched its highest since November.

But it was the euro that took the spotlight as it fell to 82.76 pence in London trade. That was the lowest level against sterling since July 2016.

The single currency was down 0.3% at $1.1086, holding near Wednesday's low of $1.1058, its lowest since May 2020. It is down 1.6% so far this week and is heading for a fourth consecutive weekly loss against the U.S. dollar.

"It's still going down," said Kit Juckes, chief global currency strategist at Societe Generale in London, referring to the euro. "Look at gas prices. This is the clinch point in terms of the economic impact of the war, and it is going to hurt."

Graphic: The euro and gas prices: https://fingfx.thomsonreuters.com
/gfx/mkt/lgvdwajqdpo/euro0303.PNG

Euro zone inflation hit a record high of 5.8% last month, data on Wednesday showed. The problem for the European Central Bank, which meets next week, is that while the war in Ukraine is likely to boost inflation further, it is a negative for both growth and inflation in the longer term.

The Australian dollar rose to its highest since mid-November at $0.7323 as prices for Australian exports such as coal, gas and grains soar on signs that sanctions against Russia are severely disrupting global supplies.

But it drifted lower as the session wore on and was last at $0.7298, just marginally higher on the day.

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A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel/File Photo

"Soaring commodity prices means commodity-focused currencies not directly linked to the escalating geopolitical tensions like the Aussie and the Kiwi are doing well," said Aaron Hurd, senior portfolio manager for currency, at State Street Global Advisors.

The U.S. dollar appeared well-supported after Federal Reserve Chair Jerome Powell said on Wednesday the central bank would begin "carefully" raising interest rates this month, but was ready to move more aggressively if needed.

The dollar index was up 0.2% and the dollar itself was 0.2% firmer at 115.74 yen, while sterling slipped 0.3% to $1.3364.

Canada's dollar, meanwhile touched a five-week high of C$1.25870 per dollar, a day after the Bank of Canada's first interest rate hike since 2018.

Elsewhere, the Russian rouble slid to a fresh record low at around 118.35 in Moscow trade after ratings agencies Fitch and Moody's downgraded Russia to "junk" status, citing the impact of Western sanctions.

Hungary's forint was weaker but holding below Wednesday's record lows against the euro as the country's central bank raised its one-week deposit rate NBHK by 75 basis points to 5.35% at a weekly tender on Thursday. That was the biggest rate hike since 2008 as the war in Ukraine roiled Hungarian markets.

Bitcoin edged down around 1% at $43,466 as an early-week bounce lost steam.

(Reporting by Dhara Ranasinghe; Additional reporting by Tom Westbrook in SINGAPORE and Saikat Chatterjee in LONDON; Editing by Hugh Lawson and Edmund Blair)

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