EM market report

Gas prices climb as we wait for the Fed

Thanim Islam
Thanim Islam 27 July 2022

GBP: Sterling/euro attempts to breach July highs

EUR: Higher gas prices, weaker euro

USD: Will markets lower rate hike expectations?


Sterling continued its correlation to risk sentiment and equity markets, tracking higher over the course of the day.

On the data front, the Confederation of Business Industry (CBI) released selling prices data suggesting that inflation could well start falling in the coming months, which would be welcome news for the Bank of England.

With the continued energy crisis in Europe as Russia cuts gas flows down to 20% through the Nord Stream 1 pipeline, and European gas prices spike up to the highs seen in March, it appears that the downtrend on the GBPEUR that we have seen since April could well be over. Significantly, the currency pair has also broken through the 200-day moving average, suggesting that we could see the potential for further highs on the currency pair.

Of course, any move higher will need to be supported by fundamentals and should the energy crisis in Europe worsen then that is one factor that could cause a move higher.


As alluded to above, European natural gas prices continued to climb higher, now at the highest since March this year as the Kremlin says that there are “some problems” with another Nord Stream turbine. The pressures on European gas prices come at a time when gas flows through the Nord Stream 1 pipeline are expected to be halved to 20% of the pipelines capacity, and EU countries reach a deal to cut gas consumption by 15% over winter.

The threat of a complete shutdown of gas supply remains high, and is evident in the prices of European natural gas, which as mentioned above is now at the highest since March. Since June the value of the euro has been negatively correlated to the price of gas, so it's fair to say that as gas prices increase, this would have a negative impact on the euro.

Data this morning from GfK has shown that German consumer confidence is now at an all time low on gas supply concerns, with French consumer confidence now at the lowest since March 2020.


Demand for the US dollar picked up marginally as news of the turbine issues in the NS1 pipeline hit the wires.

Domestic data continues to support the idea of a slowing economy with new home sales falling to the lowest since April 2020, and July’s consumer confidence now at the lowest since February 2021.

All eyes tonight will be on the Fed and what guidance they give to the markets regarding the size/pace of future rate hikes, as well as looking for any chance for any change in language regarding future rate hikes. Previously, the Fed have been bullish in their fight against rising inflation with a stance of aggressively hiking interest rates. However, should we see the Fed steer away, and perhaps suggest that they are concerned about economic growth, then we could see money markets lower their pricing for additional rate hikes, which could in turn cause a weaker US dollar.

As ever in these meetings, the devil will be in the details of the accompanying rate statement.

Before then, we have durable goods orders data out at 1.30pm. Durable goods are good considered to last three years or more, namely cars and appliances, and thus give a gauge in the confidence in the economy.

Chart of the day

The impact of reduced gas flows through the Nord Stream 1 pipeline has had a big impact on gas prices in Europe.

The chart below shows the impact of the reduced flows through NS1 (purple line), as can be seen with higher gas prices in Europe (white line). Since the end of June we can then see as gas prices have increased, and the EURUSD currency pair (red line) has dropped. Should gas prices continue to climb then we could we see another attempt at parity on the EURUSD pair… or perhaps even lower.


Market rates

Today's Interbank Rates at 09:57am against sterling movement vs yesterday.



US dollar

$1.206 ↑

Australian dollar


South African rand


Japanese yen


Have a great day.