Euro hits eight-month low after EU, US sanctions on Russia

Euro and Dollar (AFP Photo)

NEW YORK: The euro sank against the dollar on Tuesday (July 29) after the European Union and the United States broadened sanctions on Russia in response to Moscow's intervention in the Ukraine crisis.

The euro fell as low as $1.3404, the lowest level since late November, from $1.3438 late Monday.

The dollar also found support from a stronger-than-expected report on US consumer confidence, which hit its highest level since October 2007.

The EU and US, in back-to-back sanctions announcements, targeted Russia's key financial, arms and energy sectors.

The US Treasury's sanctions blocked all but short-term debt transactions with VTB Bank, its subsidiary Bank of Moscow and Russian Agricultural Bank.

Sanctions also targeted state-owned United Shipbuilding Corporation, which builds attack submarines and surface warships, some of them for export to Moscow's overseas military partners.

Europe's sanctions will notably make it tougher for Russian state-owned banks to access European financial markets, forcing their costs higher and hobbling an already struggling economy.

"The escalation of geopolitical tensions linked to Ukraine and Russia probably affects the euro more than other currencies because the European economy is the most exposed to Moscow on a commercial basis," said Vassili Serebriakov of French bank BNP Paribas.

The greenback strengthened ahead of two major risk factors Wednesday: the government's first estimate of gross domestic product in the second quarter and the Federal Reserve's statement after a two-day monetary policy meeting.

"The real trend for the dollar - and perhaps even underlying volatility and broader capital markets - comes with the fundamental direction these two events provide," said John Kicklighter, chief currency strategist at DailyFX.

"Is the Fed closing in on its first rate hike faster than investors are preparing for? Is US growth cooling and clouding the prospect of ever-greater capital returns?" he said.