The euro briefly fell back below parity against a robust U.S. dollar on Monday and was languishing at five-week lows, weighed down by concern that a three-day halt to European gas supplies later this month will exacerbate an energy crisis.

The dollar index, which measures the greenback against a basket of peers, hit new five-week highs as Federal Reserve officials reiterated an aggressive and hawkish monetary tightening stance ahead of the Fed's Jackson Hole symposium late this week.

It was the euro that bore the brunt of the selling pressure against the dollar after Russia announced late on Friday a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month.

The currency fell to as low as $0.99945, its lowest level since mid-July, and was last down 0.4 percent on the day.

"The euro's fair value has been damaged by the energy shock – meaning that euro/dollar is not especially cheap even at these levels," said Chris Turner, global head of markets at ING. Soaring gas prices continue to weigh on the eurozone and with winter approaching, the problem is likely to worsen.

The energy problem in Europe is really getting worse with German year-ahead power trading at a fresh record high. The German government warned that the economy is stagnating and the outlook is gloomy as energy prices soar and supply-chain disruptions continue. Adding to the Euro gloom, German PPI data showed the price of goods and services sold in the wholesale market soar to record levels.

The U.S. dollar index, which measures the currency against six rivals including the euro, rose to 108.47 – its highest since July 15, and the British Pound and the Japanese Yen. These rivals are contending with their own problems that make the U.S. dollar, as the saying goes, "the nicest house in a bad neighborhood," said smugly by an American analyst.

The U.S. dollar posted its best week of 2022 last week, gaining 2.33 percent, amid a chorus of Fed policymakers stressing that more needs to be done to rein in decades-high inflation.

Economists in a Reuters poll lean toward a 50-basis-point increase at the Fed's next meeting on September 21 with recession risks on the rise.

The dollar also rose as high as 6.8420 yuan in onshore trading for the first time since September, 2020 after the People's Bank of China cut the one and five-year loan prime rates, as widely expected. That came after it eased other key borrowing benchmarks in a surprise move last week.

(Source: Reuters with edits)

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