We see clear signs that Russia is using all available excuses to reduce its gas exports to Europe and they will likely continue with the same strategy ahead. Energy rationing during the winter is on the horizon, with EU countries agreeing on voluntary cuts of up to 15% of their five-year average gas consumption. In this case, gas will be prioritised for heating of households rather than industrial production. In any case, activity in the Eurozone will be affected negatively while price pressures could increase further. The US economy is also in a favourable position due to their energy independence compared to Europe or most Asian economies. Thus, from a purely global energy security viewpoint, the US will fare best among the world’s major economies.
Inflation is also biting into the desire to spend on expensive durable goods. But households are spending more on services, which are more labour intensive. No proper recession will come to the US until service consumption takes a turn for the worse, and we are still far from such a point with the still increasing demand for services after the pandemic.
From a Dollar smile perspective, you should still prefer to hold USD if you believe Europe is in for a tougher ride than the US, or even if you expect the US economy to crash. We could see EURUSD falling additional 10 big figures to levels such as 0.90.
- Nordea
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