The euro has dropped to its lowest level against the US dollar in almost two years, at EUR/USD 1.03. The downturn coincides with Germany's prolonged economic stagnation and an EU-wide energy crisis.

The euro fell 0.4% versus the dollar on Thursday morning, reaching 1.032 before noon in Europe. The European currency has not traded this low against the dollar since November 2022, when much of the EU was bracing for winter gas shortages following the bloc's ban on Russian fossil fuels.

The German economy is still reeling from the consequences of the embargo. It declined in 2023 and 2024, with the country's central bank forecasting a measly 0.2% increase this year.

Germany, once Europe's industrial powerhouse, has suffered from rising energy costs since cutting off its oil and gas supplies from Russia. Leading German firms, including Volkswagen and Bosch, have planned cuts in 2024.

Political unrest has also worsened the eurozone's problems, with the governments of Germany and France failing late last year and the entire EU bracing for US President-elect Donald Trump's threatened tariffs.

Last year, the European Central Bank reduced interest rates four times and is likely to lower them again in 2025.

According to Bloomberg, these many circumstances caused economists to predict that the euro will fall to parity with the dollar this year. The euro last fell below parity with the dollar in early 2022, just after the Ukraine war started.

The collapse occurred a day after Britain reported its worst decrease in industrial production in 11 months, and less than two weeks after a revised official projection pegged growth at 0% in the fourth quarter of 2024.

European gas prices surge after Russian flow disruption: Bloomberg

European gas prices rose on the first trading day of the year as the region faced the prospect of freezing winter temperatures, compounded by the loss of a critical gas supply source, Bloomberg reported on Thursday.

Front-month benchmark prices climbed by as much as 4.3%, reaching €51 per megawatt-hour, the highest since October 2023. Russian gas shipments through Ukraine ceased on New Year’s Day after a transit contract expired, and no replacement agreement has been made as Ukraine refused to renew the deal.

Traders are closely monitoring whether this disruption in Russian flows, a vital source for several Central European countries, will lead to faster withdrawals from gas storage. Inventories are already depleting at the quickest rate since 2021 when the initial stages of the gas crisis began.

The timing of the cutoff aligns with forecasts of sub-zero temperatures across Europe, especially in Slovakia, where temperatures may drop to as low as minus 7°C (19°F) by mid-January, increasing heating demand.