Euro slides below $0.99 after Russia halts gas supplies to Europe

The euro has fallen below $0.99 for the first time in 20 years after Russia said it would shut off its main gas supply pipeline to Europe indefinitely.

The euro was hovering just below the 0.99 level as European markets opened Monday, trading at 0.9893 versus the dollar shortly after 8:00 a.m. London time (3:00 a.m. ET). Earlier in the morning, it hit lows of around $0.9881.

The dollar index, which measures the greenback against six major currencies, also breached a fresh two-decade high as the British pound slid on fears over energy supply and European economic growth. 

On Friday, Russian energy supplier Gazprom said it would not resume its supply of natural gas to Germany through the key Nord Stream 1 pipeline, blaming a malfunctioning turbine.

The announcement was made hours after the Group of Seven economic powers agreed on a plan to implement a price cap on Russian oil.

It comes ahead of a meeting of the European Central Bank Thursday, when economists expect it to raise its benchmark deposit rate from 0 to 0.75% against a backdrop of concern over Europe’s ability to meet its energy needs this winter and the potential for a hit to growth.

“We expect that Russia is respecting the contracts that they have, but even if the weaponization of energy will continue or will increase in response to our decisions, I think that the European Union is ready to react,” Paolo Gentiloni, the EU’s economics commissioner, told CNBC over the weekend.

Meanwhile, the pound was trading at 1.1465 against the dollar as the U.K. prepares to find out who its new British prime minister will be. The new premier will be forced to reckon with a growing cost-of-living crisis fueled by soaring energy bills.

Sterling fell 4.5% against the dollar in August, its worst month since Brexit, and one analyst forecast that it would “plumb new depths” due to political and economic uncertainty, potentially hitting $1.05 by the middle of next year.