European Gas Prices at Highest Since 2022 on LNG Supply Fears
European natural gas prices have surged to their highest levels since late 2022, driven by escalating geopolitical tensions between the U.S. and Iran that raise concerns over liquefied natural gas (LNG) supplies. This development is especially critical as Europe braces for increased energy demand during the winter months. The elevated energy costs are exacerbating the already challenging economic environment in the eurozone, impacting growth expectations and widening the valuation gap for the euro against the U.S. dollar.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The sentiment surrounding the euro has turned bearish, influenced by rising energy costs and stagflation concerns within the eurozone.
How firms align
Goldman Sachs aligns with the bullish sentiment on USD, suggesting a target of 1.12 as they anticipate further weakness in the euro amid energy supply risks. Conversely, BofA takes a more cautious stance, setting their target at 1.04 as they expect a potential stabilizing in economic conditions.
What the data shows
Recent forecasts reflect an increasing divergence in growth outlooks for the eurozone in light of rising energy prices. For further insights into market sentiment on the euro, refer to /research/eurozone-energy-impact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Gas prices in Europe are at their highest since late 2022, threatening supply stability.
- 02Europe's energy cost crisis is widening the EUR/USD valuation gap.
- 03Catalyst: Escalating US-Iran tensions could push prices higher, affecting forecasts.
- 04Expect volatility in FX markets as winter demand approaches.
Market implications
Traders should monitor the EUR/USD levels closely as we approach key economic reports this winter. A decisive break below 1.07 could signal further weakness for the euro, aligning with our consensus target of 1.075.
Risks to this view
A de-escalation of U.S.-Iran tensions or an unexpected surge in LNG supplies could invalidate the bearish outlook for the euro, resulting in a reversal of market sentiment.
Sentiment by currency
USD+EUR JPY~GBP~Composite USD score: +0.65
Sources & References
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