EUR/USD nosedives to five-year low amid Russian ‘gas blackmail’

The euro tumbled on Wednesday amid concerns of a possible disruption to EU energy supplies, after Russia began blocking gas exports to ‘unfriendly countries’.

Meanwhile, the pound is stable this morning, with GBP/EUR buoyed at €1.1907 and GBP/USD flat at $1.2539. GBP/CAD and GBP/AUD are rangebound at C$1.6067 and AU$1.7610, respectively, while GBP/NZD climbs to NZ$1.9258.

Coming up, the focus today will likely be on the latest US GDP release, where a slowdown in growth could weaken demand for the US dollar.

What’s been happening?

The euro suffered a sharp selloff yesterday as investors were spooked by Russia’s move to halt gas exports to Poland and Bulgaria over their refusal to make payments in roubles.

This was followed by a warning from Kremlin spokesperson Dmitry Peskov, in which he suggested other EU customers could also be cut off, stoking fears supplies to countries like Germany could be disrupted.

Reinforcing these losses was the publication of Germany’s consumer sentiment figures, after May’s index reported a record plunge in consumer morale.

The US dollar, meanwhile, continued to push higher, underpinned by risk-off flows in addition to the expectation for several aggressive interest hikes from the Federal Reserve in the coming months.

At the same time, the pound wavered yesterday, after a larger-than-expected plunge in UK Confederation of British Industry’s (CBI) distributive trends index, erased Sterling’s modest gains at the start of the session.

What’s coming up?

The spotlight today is likely to be on the publication of the latest US GDP figures.

The preliminary estimate is forecast to report a slowdown in US economic growth in the first quarter of 2022. Will this be enough to end the US dollar’s recent bullish run?

The publication of Germany’s consumer price index will be the primary focus for EUR investors. If inflation in the Eurozone’s largest economy continues to overshoot expectations, then it may bolster hopes that the European Central Bank (ECB) will begin raising interest rates in the near term.

Meanwhile, GBP investors will look to a speech by Bank of England (BoE) Governor Andrew Bailey for fresh impetus today. Any dovish comments from Bailey could push the pound lower.