For its part, the euro sank on Monday below 0.99 dollars, reaching a new low of 20 years, after the interruption of gas supplies by Russia.
In recent months, the euro has become increasingly correlated with natural gas prices, with the former falling when energy source prices rise.
Europe is scrambling to shed Russian supplies and build up reserves ahead of the cold winter months, but investors see the hit to its economy as huge.
Russia on Saturday canceled the deadline to resume gas flows through the Nord Stream pipeline, citing an oil leak from a turbine. This coincided with the announcement by the Group of Seven economy ministers to limit the price of Russian oil.
The euro fell as low as $0.9876 in early European trading, its lowest level since 2002, before recovering and trading down 0.2% at $0.9939.
Other currencies vulnerable to spiraling energy prices also fell. In early trading, the British pound fell as much as half a percentage point to a fresh two-and-a-half-year low of $1.1444.
The dollar index, which measures the greenback’s performance against a basket of currencies, briefly hit 110.27, its highest level since June 2002.
In this very important week for the euro, investors are also preparing for Thursday’s meeting of the European Central Bank (ECB) and markets have priced in almost 80% the possibility of a rise in interest rates of 75 basis points (bp), in an attempt to combat inflation, which stands at more than four times its 2% target.
ECB officials will want the euro, which has lost around 8% of its value in the last three months, to stabilize. That will fuel the desire to try to tame inflation by tightening monetary policy.
“High energy prices, the risk of gas shortages and the fiscal and regulatory response will determine the outlook for GDP and inflation in the euro zone much more than anything the ECB can do with rates,” he said in a statement. note to clients Holger Schmieding, chief economist at Berenberg.