Euro slides as war in Ukraine stokes inflationary shock

The euro tumbled to a fresh 22-month low on the dollar while commodity currencies were swept to multi-month peaks as war in Ukraine sent oil prices spiking and stoked fears of a stagflationary shock that could hammer Europe.

The euro EUR=EBS fell as much as 1% to $1.0822 in Asia trade, its lowest since May 2020, before steadying around $1.0882 early in European trade. It is down almost 4% since Russia began what it calls a “special military operation” in Ukraine and is not far from testing its 2020 trough of $1.0636.

It also fell below parity on the Swiss franc EURCHF= for the first time since the Swiss quit their euro peg in 2015, hitting 0.9970.

Oil futures, which surged more than 20% last week, leapt to highs not seen since 2008 as the United States and Europe mulled bans on Russian imports. Wheat Wv1 hit a 14-year high. MKTS/GLOB

The Australian and New Zealand dollars each rose 0.9% to touch four-month peaks. AUD/

“The euro is being picked on,” said Sean Callow at Westpac in Sydney. “(The war) is on Europe’s doorstep,” he said.

“The criss-cross of pipelines from Russia through Ukraine is just indicative of how enmeshed and dependent much of Europe has become on Russian energy and that’s not something you can turn around quickly. A much gloomier European growth outlook is being priced in.”

The euro EURJPY= fell on Monday to a 15-month low of 124.39 yen and touched its lowest since mid-2016 on the pound EURGBP= at 82.01 pence. Against the Aussie EURAUD=, the euro has lost more than 10% over about a month.

Fighting in Ukraine intensified over the weekend and attempts at a ceasefire to allow civilians to evacuate from the besieged city of Mariupol seem to have so far failed. Read full story

SUPPLY SHOCK

The conflict and harsh western sanctions on Russia have sent Russian assets tumbling and prices of Russian exports such as precious metals, oil and gas soaring at a time when the global economy was already grappling with inflationary pressures.

“This is very bad news for global growth – particularly Europe, given their dependence on gas from Russia,” ANZ analysts said in a note.

“All up, it’s another big, ugly supply shock on top of lingering COVID impacts, with serious inflationary consequences that give central banks absolutely no room to ‘give growth a chance’.”

Sterling GBP=D3 has also been weighted by gloom over Europe’s outlook and fell to a two-month low of $1.3187.

Russia’s rouble RUB= barely traded in the interbank market as clearing houses cease settling trades. It was last quoted at 126.50 per dollar.

Elsewhere in Asia the Indian rupee INR=IN hit a record low as high oil prices will likely widen trade and current account deficits. The South Korean won KRW=KFTC was pummelled to a 21-month trough. Read full story

Over the weekend China announced a slower economic growth target of around 5.5% this year. Last year China’s GDP grew 8.1%, beating the government’s target of more than 6%. The yuan CNY=CFXS was steady at 6.3191 per dollar on Monday. CNY/

Among gainers, the Australian dollar AUD=D3 cracked January’s peak to touch $0.7440. The New Zealand dollar NZD=D3 also cleared a January top to reach $0.6926. AUD/

The U.S. dollar rose against the Swiss franc and the yen, last up about 0.5% on the franc at 0.9207 CHF=EBS and about 0.2% higher on the yen JPY=EBS at 114.93.

The U.S. dollar index =USD hit a 22-month top of 99.220. Last week data showed U.S. unemployment falling to a two-year low of just 3.8%, though inflation data this week is expected to show annual growth at a stratospheric 7.9%. Read full story

The European Central Bank meets on Thursday. Read full story