Euro fell in European trade against dollar for the seventh session in  a row, hitting 20-year lows as the natural gas crisis deepens in Europe and hurts economic performance. 

The dollar hit fresh 20-year highs recently, with US 10-year treasury yields surpassing 4% for the first time since 2008 following a spate of bullish remarks by Fed officials. 

EUR/USD fell 0.5% to 0.9541, the lowest since June 2002, after losing 0.2% yesterday, the sixth loss in a row, and the longest such streak since April following strong US economic sentiment data. 

Fuel Crisis

The European Union started investigations in potential attacks on Russian gas pipelines in the Baltics, which feed Germany, Denmark, and Sweden. 

Such developments threaten to exacerbate the fuel crisis even more in Europe and send natural gas prices to fresh record highs, weighing further on the economy. 

The Dollar

The dollar index rose over 0.5% on Wednesday for the fourth straight session, hitting fresh 20-year highs at 114.77 against a basket of major rivals. 

US 10-year treasury yields rose 1.7% for the third straight session to 4.011%,  the highest since October 2008, bolstering the case for dollar investments. 

Such developments came after a spate of strong US data and bullish remarks by Fed officials on optimism for reining in inflation without hurting economic output. 

US stock indices gained ground on Tuesday to regain recent heavy losses which pushed them to two-year lows. 

The losses came after aggressive policy tightening by global central banks, which threaten to send the global economy into recession.

Otherwise, Fed officials expressed optimism in managing to stave off recession for the US economy.

Dow Jones rose 0.7%, or 216 points to 29,477, while S&P 500 rose 1% to 3,690, as NASDAQ climbed 1.4%, or 150 points to 10,951.

Oil prices rose 2.5% in European trade off eight-month lows plumbed yesterday, and on track for the first profit in three days on forecasts OPEC Plus might cut production to boost prices.

Prices were also buoyed by a slowdown in US output due to a series of hurricanes in the southern region.

Global Prices

US crude rose 2.5% to $78.37 a barrel, while Brent climbed 2.25% to $85.86 a barrel, after US crude lost 3.8% on Monday, hitting eight-month lows at $76.28, while Brent fell 3.3% to $83.71 a barrel. 

Oil prices sustained these heavy losses as the US dollar spiked against major rivals, hurting high-risk assets. 

OPEC Plus

Iraq's oil minister said today that OPEC Plus is monitoring prices closely and is seeking to rebalance them.

Such statements paved way for forecasts the oil cartel might cut output this year to maintain balance. 

Mexican Gulf

Major oil companies BP and Chevron were forced to close production in maritime rigs in the Mexican Gulf amid approaching storms. 

The Mexican Gulf represents 17% of total US crude output, which topped at 12.1 million bpd recently, a two-year high.

UK 10-year treasury yields tumbled today after marking the best gains in six months yesterday, hitting 12-year highs past 4%. 

The main reason behind such stunning developments is the UK government's new financial stimulus plan to bolster growth in the country.

Such plans triggered concerns that the government might not be able to sustain its debts in the medium and long terms. 

Bond Yields 

UK 10-year treasury yields fell 3.5% today on track for the first loss in seven sessions on profit-taking. 

The yield surge 11.5% yesterday, the biggest gain since March, hitting 12-year highs at 4.267% after quickly blowing through 4%. 

The yields are now up 131 basis points since September and on track for the largest monthly increase on record.

Financial Stimulus 

The UK government announced a patch of tax cuts and investment stimuli to support growth, noting it's the largest package of tax cuts in the UK since 1972, that covers employees and corporations.

The government is also aiding families and corporations against the rising fuel costs by 60 billion pounds in the next six months.

Markets are now betting the government won't be able to pay back its debt at the same time the BoE is refusing to increase interest rates by sufficient amounts, leading to the pound's selloff.

Financing The Plan

The massive stimulus plan, which include 45 billion pounds of tax cuts, and 60 billion pounds for energy support to families and corporations, will be financed by loans. 

This comes at a time when Bank of England is planning to sell bonds valued at 80 billion pounds next year to cut down its overall budget. 

An Economic Dilemma 

Goldman Sachs' analysts believe the crisis in the UK is derived from the contradiction between monetary and financial policies. 

Launching an ultra easy monetary policies through tax cuts and fuel aid is aimed at preventing recession and improving productivity. 

However, Bank of England is going the opposite way, by tightening policies and raising interest rates to control runaway inflation.

If the pound continue to suffer like so, analysts expect Bank of England to hold an emergency meeting to raise interest rates by an even steeper amount, adding pressure on UK official bonds.