Gas price retracement regulates currency markets
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Gas prices have fallen sharply since Russian President Vladimir Putin said Russia would significantly increase gas supplies to the European market, a move that has settled currency markets.
Not only will Russia’s additional supply put downward pressure on prices, but the intervention will shatter any speculative excess that may have arisen in the gas market.
For the major currencies, the response is in line with what we expected: the euro and the pound are recovering against the dollar.
In an article published on October 07, the British Pound Live reported that the euro appeared to be the most vulnerable to the surge in energy prices, given the exceptional advance in European gas contracts.
Putin said on Wednesday he would seek to increase supplies to Europe beyond existing contractual obligations.
The impact on the gas market came not so much from the promise to increase supply, but from the message itself: it came at the most opportune time, when sparkling markets were most vulnerable to a downturn. counter-trend.
“These fierce market dynamics seem characteristic of the usual foam around cycle peaks”, explains Yves Bonzon, Group Chief Investment Officer at Julius Baer.
Above: The UK gas contract price for November.
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With the noticeable drop in gas prices over the past 24 hours, the euro looks firmer:
As of this writing, the GBP / EUR has fallen back to 1.1747, after hitting 1.17707 on Wednesday.
EUR / USD is up at 1.1563, after going as low as 1.1529 on Wednesday.
The GBP / USD exchange rate is hovering at 1.3583 after going as low as 1.3532 on Wednesday.
Gas prices have had a noticeable impact on financial market volatility in recent times and the immediate outlook will depend on whether the worst of the price spike has already passed.
If this is the case, stock markets may continue to recover, allowing risky currencies to advance at the expense of the yen, franc and US dollar.
The beneficiaries would include the British pound, the Canadian dollar, the Australian dollar, the New Zealand dollar and emerging market currencies.
“We are convinced that the recent surge in energy prices is only temporary and that price pressures will ease in the months to come,” Bonzon said.
Julius Baer maintains that the global economic expansion has suffered only a setback but remains well positioned to continue.
They see the recent surge in energy prices as the result of an “exceptional coincidence of wild cards, such as adverse weather events, which are boosting energy demand and depleting supplies, fueling fears of scarcity.”
Soaring gas prices “are exemplary of the fierce momentum that sometimes unfolds in commodity markets,” Bonzon said.
“Prices are expected to drop later this year as the market’s self-healing mechanisms have kicked in,” he adds.