Euro slides to one-month low as gas prices surge on Middle East supply fears

The euro slid to a one-month low against the dollar on Monday as European natural gas prices surged past €80 per megawatt-hour, driven by escalating Middle East hostilities that threaten to squeeze the continent's energy supplies heading into winter.

Dutch TTF futures, Europe's wholesale gas benchmark, climbed to roughly €84 per megawatt-hour on Monday after Houthi forces extended their grip on Red Sea shipping routes and an Iranian-backed militia struck Saudi Arabia's East-West oil pipeline. The pipeline, operated by Saudi Aramco, will be out of service for weeks as repairs are carried out, according to the Associated Press, citing regional officials. The EUR/USD pair fell to 1.1537 on Tuesday, breaking below its 100-day moving average.poundsterlinglive+2

An Energy Shock With No Easy Exit

Eurozone gas storage stood at just 65% full at the end of August, well below the seasonal norm of roughly 80%, forcing the bloc to cover the shortfall in a spot market already pricing in supply disruption. Berenberg, the investment bank, noted that natural gas is now around 85% above its late-April level and cut its 2027 eurozone growth forecast to 1.1% from 1.3%, while raising its 2027 inflation projection to 2.6% from 2.2%, citing the combined pressure of higher energy costs and higher interest rates.poundsterlinglive

French inflation data released Tuesday underscored the trend, with INSEE reporting consumer prices rose 2.6% year-on-year on an EU-harmonised basis in August, up from 2.4% in July and the highest reading since May. Across the eurozone, inflation hit 3.3% in August.finance.yahoo+1

ECB Hawkishness Fails to Shield the Currency

The European Central Bank raised its deposit rate by 25 basis points to 2.5% on September 10, its second hike of 2026. Latvian central bank governor Martins Kazaks warned that "interest rates may need to wade into restrictive territory" and said the case for further tightening is building. ECB Executive Board member Isabel Schnabel called energy price developments "quite concerning" on Monday.khancapitals+3

Morgan Stanley ↘ 3.64% shifted its call on Tuesday, now expecting another 25-basis-point hike in December that would take the deposit rate to 2.75%. Yet the euro has fallen despite firmer rate expectations, suggesting markets view the hikes as a response to an external shock rather than underlying economic strength.poundsterlinglive

Dollar Strength Adds to the Pressure

The dollar index rose to 99.6 on Monday, its strongest session since Federal Reserve Chairman Kevin Warsh's Jackson Hole speech, with the 10-year Treasury yield touching 5.00%. Markets are pricing a 93% chance of a Fed hike on Wednesday. ING strategist Francesco Pesole warned that "a risk-off, hawkish hike by the Fed tomorrow could easily take the pair to our 1.150 short-term target". Rabobank expects gas to keep European power prices elevated into 2027, noting that low storage and disrupted Gulf LNG flows support near-term upside in energy costs.poundsterlinglive