The main gas pipeline from Russia to Europe will be shut off due to what the country claimed as maintenance concerns, which caused the euro to drop to a 20-year low on Monday.
The euro’s value decreased as much as 7%, to 98.8 cents, its lowest point since 2002. As COVID-19 slammed the economy in October 2020, it hit a record low of 83 cents.
The Nord Stream 1 pipeline will be shut off permanently, according to a statement from the state-owned Gazprom company on Friday. Experts believe that energy shortages will harm Europe’s economy and pressure the euro because the pipeline delivers natural gas to much of Western Europe.
“The U.S. economy is slowing, but it is doing so at a slower pace versus Europe, which is facing an energy crunch,” Gregory Daco, chief economist at global strategy organization EY- Parthenon, told CBS MoneyWatch. “In terms of the growth dynamic, growth is going to be faster in the U.S. Even though it will go into recession, I think the eurozone will be sharper.”
At 8.9% in July, inflation in the 19-nation eurozone was more than four times higher than in July last year.
Since the beginning of Vladimir Putin’s invasion of Ukraine in February, the prices of Nord Stream 1 have decreased dramatically.
Jonathan Petersen, the senior markets economist at Capital Economics, believes the euro will continue to lose value compared to the dollar and projects that it might reach a low of 90 cents by the middle of 2023 before slowly recovering.
“The indefinite closure of the Nord Stream 1 pipeline strengthens the ‘stagflationary’ headwinds facing eurozone economies and reinforces our view that the euro is likely to fall further against the U.S. dollar over the next 12 months or so,” he said.
Because of the strong dollar, Americans can travel to Europe at a more affordable price due to the favorable exchange rate.