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Euro falls further amid concerns over EU-Russia ties

Wed., July 23, 2014

LONDON – The euro fell Tuesday to its lowest level against the dollar this year amid concerns that the downing of Malaysia Airlines Flight 17 will prompt a bigger freeze in relations between the European Union and Russia.

The crash of the jetliner, which cost the lives of all 298 on board, has fueled concerns of a downward spiral in political and economic ties between the 28-country EU and Russia. EU foreign ministers at a meeting in Brussels agreed to extend the current list of sanctions on Russian individuals and said they may yet penalize economic ties.

Western powers have said there is evidence that the jet was hit with a missile fired from territory controlled by pro-Russia insurgents. Moscow has suggested the missile was fired by Ukrainian government forces.

The deterioration in relations between the two sides has worked against the euro, which is used by 18 EU countries. The crisis in Ukraine has given traders an opportunity to sell the euro, which had been at multiyear highs against the dollar despite the muted economic recovery in the eurozone and low interest rates.

The single currency fell 0.4 percent Tuesday to $1.34, its lowest level since last November. Analysts say the prospect of a protracted standoff between Europe and Russia could prompt further falls in the currency.

“Tougher economic sanctions on Russia would more than likely continue to entice investors toward selling the euro,” said Jameel Ahmad, chief market analyst at FXTM.

Over the past few months during the Ukraine crisis, the EU has appeared reluctant to impose crippling sanctions on Russia, partly because many countries such as Germany stand to lose business. Many parts of the EU are also heavily dependent on Russian-imported gas.

The scale of the Malaysia plane disaster has fueled speculation across financial markets that the EU will target Russia’s wider economy as well as individuals if Moscow doesn’t help calm the crisis.

That could have an impact on the European economy, but most analysts think Russia, whose economy is stagnating, stands to lose a lot more.


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