THE EURO DIVED to a new two-decade low against the dollar and European stock markets fell today as weak economic data raised fears of recession amid an energy crunch.

The euro tumbled to be worth $0.9901, but in afternoon trading, it clawed back losses to return above parity with the dollar.

The dollar had strengthened this week against other currencies ahead of a speech later this week by US Federal Reserve chief Jerome Powell, as markets speculate that the US central bank will further tighten its monetary policy.

Higher interest rates boost the dollar as they make dollar-denominated debt more attractive to investors.

Meanwhile, the euro is weighed down by a gloomy outlook for the eurozone economy as Russia’s war in Ukraine has sent energy prices soaring.

The currency had already plunged below parity yesterday on recession fears to plumb the lowest levels since 2002, when it came into physical circulation.

In the latest blow, S&P Global’s closely-watched monthly composite purchasing managers’ index (PMI) showed that eurozone economic activity fell for the second month in a row in August.

“Eurozone PMIs… confirm concerns of an impending recession in Europe on the back of high inflation and energy crunch, as they signal declining activity for two months in a row,” warned Citi analyst Luis Costa.

“The energy crunch remains an overarching threat to economic stability in Europe,” he added.

European equities slid amid stubborn worries that the US Federal Reserve will carry on ramping up interest rates to fight inflation.

European natural gas prices fell today although they remain elevated on fears of a halt to Russia’s gas deliveries.

The Dutch TTF Gas Futures contract stood at €268.45 per megawatt hour, down from yesterday.

Gas had spiked to record peaks in March after key producer Russia launched its invasion of neighbouring Ukraine.

That has sparked surging domestic energy bills, fuelling decades-high inflation that has prompted tighter monetary policy around the world.

Meanwhile, US natural gas prices hit a fresh 14-year high on Tuesday.

“As it has become painfully obvious, natural gas is a much more effective weapon in the hands of Russian politicians than the Kalashnikov in the hands of their soldiers,” noted PVM analyst Tamas Varga.

This has hit the single currency hard because the bloc relies heavily on imported Russian gas, said Societe Generale analyst Kit Juckes.

Fears increased after Russia’s Gazprom said Friday the Nord Stream pipeline would be closed for maintenance at the end of the month, cutting Europe’s crucial gas deliveries.

“The euro’s problem is… the threat from continued squeezing of gas supplies and the cost of replacing Russian gas,” Juckes said.

© AFP 2022