The encouraging news about the severity of the new Omicron strain has been partly offset in Europe by the further spike higher in energy prices over the holiday period. Furthermore, the sour relationship between the West and Russia adds downside risks for European currencies, as reported by economists at MUFG Bank.
Natural gas prices continue to surge higher in Europe
“Recent price action has reinforced our view that the energy price shock will hit the European economies harder than the US and further boosts the relative appeal of the US dollar heading into early next year.”
“The upward pressure on European gas prices reflects in part the risk of disruption to supplies from Russia in response to risk of another invasion of the Ukraine.”
“It was reported yesterday by Reuters that the US is mulling imposing strict export controls on Russia which resemble Iran sanctions should they invade the Ukraine. It remains to be seen whether the risk of more severe sanctions proves sufficient to discourage Russia. The developments continue to pose downside risks for the rouble and other European currencies relative to the US dollar in the near-term.”