LONDON, July 26 Reuters The prospect of another Russian gas supply cut knocked the euro lower on Tuesday, while dollar gains were tempered by mounting uncertainty over the U.S. Federal Reserve39;s policytightening path after this week39;s expected interest rate rise.

European Union countries were preparing to approve an emergency proposal to curb gas demand, the prospect of which sent the single currency and German bond yields lower and hit German shares.

It39;s becoming a more mainstream view that the price to pay for supporting Ukraine against Russia will be gas rationing, said Rabobank senior strategist Lyn GrahamTaylor.

All this adds to the recession and inflation story.

Russia said on Monday it would cut gas flows to Germany via the Nord Stream 1 pipeline to 33 million cubic metres per day bpd from Wednesday. That is half of current flow, which is already only 40 of normal capacity. 

By 1045 GMT, the euro was down 0.7 at 1.0142 and against the pound it had lost 0.3 at 84.6 pence , . It also shed 0.8 against the Swiss franc, plunging to a new sevenyear low around 0.977 francs .

The euro remains above parity versus the dollar, hit earlier this month, but ING Bank strategist Francesco Pesole warned that traders could start repricing rate hike expectations from the European Central Bank.

Money markets now see a 39 bps ECB rate hike in September, versus 50 bps last week and see around 100 bps by yearend, which Pesole says is too hawkish.

The Russian gas story…