Euro falls to lowest since 2002 on concerns over energy prices

ROME (REUTERS) - The euro tumbled to a new two-decade low on Wednesday (July 6) as fears over rising energy prices and potential shortages cast a long shadow over the bloc's economy, while demand for safe haven assets drove the US dollar to fresh 20-year highs.

All oil and gas fields that were affected by a strike in Norway's petroleum sector are expected to be back in full operation within a couple of days, Equinor said on Wednesday.

Meanwhile, Goldman Sachs raised its natural gas price forecasts, saying that a complete restoration of Russian gas flows through Nord Stream1 was no longer the most likely scenario.

Analysts expect a quick resurgence in oil prices as supply tightness persists and as front-month spreads have held up despite Tuesday's price fall.

"It is not only the threat of non-delivery (of gas) that is weighing on the euro," said Berenberg forex and rates adviser Moritz Paysen.

"The already high energy costs are a burden. Energy costs in Europe are many times higher than in the US," he added.

The euro fell 0.7 per cent against the US dollar to 1.0186, the first time below 1.02 since December 2002.

Euro zone consumers cut spending on food, drinks and tobacco for the second straight month in May amid a spike in prices, according to estimates from the European Union statistics office Eurostat released on Wednesday.

The divergence between central banks' tightening cycles across the Atlantic remained in investors' focus.

"The big question is whether this deterioration in growth prospects is enough to curtail tightening cycles - especially that of the Fed," ING analysts said.

They reckon the forex market will consolidate the current levels on Wednesday ahead of US Federal Open Market Committee minutes from its June meeting.

"The general view that the Fed might ultimately have more opportunity than many other central banks to continue policy normalisation," Unicredit analysts said.

The US dollar index - which tracks the greenback against six counterparts - rose 0.4 per cent to 107.02, its highest since 2002.

The euro dropped to its lowest level against the Swiss franc since the Swiss National Bank abandoned its currency cap in 2015.

The single currency was down 0.4 per cent to a fresh seven-year low, at 0.9897.

"In the current circumstances, the traditional safe haven currencies of the US dollar, Swiss franc and yen appear set to continue to outperform in the near-term," MUFG analysts said.

Yen gained a little support from some safety bids after Japanese households' inflation expectations strengthened in the 3 months to June, with the ratio of homes expecting price rises over the coming year hitting the highest level in 14 years.

The US dollar dropped 0.3 per cent to 135.36 yen. It hit at the end of June its highest since 1998 at 137.

Bank of Japan has said it would not withdraw monetary stimulus because inflation is due to soaring fuel and raw material costs blamed on the Ukraine crisis and will likely prove temporary.

Bitcoin fell 1.7 per cent and was last trading at US$20,088. Ether rose 0.5 per cent at US$1,138.