Power Cuts Are Expected to Hit Europe as Temperatures Drop. What Does This Mean for EUR?

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Before the ongoing war between Russia and Ukraine, much of Europe has good relational and trade ties with Russia. One of these ties was the steady gas supply that Russia pumped into the rest of Europe, some of it was used for energy generation. This all changed however as when Russia invaded Ukraine trade relations with the country soured which eventually lead to Russia cutting off its gas supply to European countries who opposed their invasion.

This is of course problematic for the households, businesses and ultimately economies that were dependent on that gas supply to power their activities. This makes it worse as Europe has been facing a shrinking economy due to the other effects of the Russia – Ukraine war. The current facilities have been able to keep up with supply, however as winter comes around the corner, there has been no real way to replace the void of natural gas in such a short space of time and so the parts of the continent are expected to introduce load shedding measures.

Load shedding can have negative effects on a countrys economy. Look at South Africa. For example, its GDP shrunk in the second quarter of the year as the country experienced load shedding through the winter. Many businesses were left without power and hence weren't able to function. The same might happen to European countries. If their response to the upcoming energy crisis is not adequate they may be facing a few tough months.

For the next few weeks as Europe approaches winter we should expect the currency to weaken in strength as load shedding begins. Regardless of how long these power cuts are to commence, there is bound to be a noticeable effect in the markets when the first power cuts are announced so it is advisable you stay sharp and start looking for shorting opportunities of the Euro.