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The risk of a natural gas crisis in Europe is growing


The euro fell to a 20-year low today, quickly cutting off this year’s low (set in May) and the 2017 low.

The main fear is that the Eurozone is heading into a severe recession and the catalyst is likely to be natural gas prices, which are fueling electricity costs. Russia has cut gas supplies, ostensibly over maintenance issues, but there is a growing fear that ‘maintenance’ will become permanent.

If the supply “doesn’t come back after maintenance because President Putin is playing games or wants to hit Europe when it hurts, then the plan to fill gas storage by the end of summer probably won’t work,” Henning Gloystein, Eurasia Group’s director of energy, climate and resources, told CNBC by phone.

Here’s a look at benchmark TTF prices, which spiked at the end of winter due to low supplies and fear of a cut. This time, the jump was driven by more forward-looking buying, as supplies are now close to average. The problem is that supplies could stagnate from here and not be replenished until the normal October stock peak.

Additionally, the Freeport LNG facility in the United States suffered an explosion in mid-June. This removed 2 billion cubic feet of US export capacity and diminished US ability to supply Europe.

Today’s Services PMI figures highlighted that the Eurozone inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates pressure from demand on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates pressure from demand on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Read this term may have peaked in April, especially if energy is excluded. The eurozone job market is much looser than in the United States, mainly for structural reasons, but also due to Ukrainian refugees, who added 0.3 pp to the German unemployment rate in the last report.

In addition to Eurozone worries, the market is increasingly concerned about global growth and central bankers will tighten towards a recession.


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