The euro dropped to its weakest level against the dollar in two decades on Tuesday and stock markets registered steep falls, as the health of the global economy looks set to worsen.
In a sign of worsening sentiment about the growth outlook, Europe’s common currency lost 1.6 per cent against the dollar to $1.0257 — its lowest point since 2002.
Vasileios Gkionakis, head of European FX strategy at Citi, said that euro-dollar parity “looks almost inevitable now”, noting that the deterioration in the euro was driven by the prospect of further falls for European stocks and a sharp rise in natural gas prices.
In equity markets, Wall Street’s S&P 500 dropped 1.8 per cent and the technology-heavy Nasdaq Composite fell 1.9 per cent. Europe’s regional Stoxx Europe 600 equity index tumbled 1.9 per cent and London’s FTSE 100 fell 2.3 per cent.

Adding to the sense of gloom, futures contracts tied to TTF, the European wholesale gas price, rose almost 5 per cent to a four-month high as it emerged that Norway’s Equinor was temporarily shutting three oil and gasfields after workers went on strike. Norway has warned that gas exports to the UK could be shut off this weekend if the situation escalates.
Jane Foley, head of FX strategy at Rabobank, said the euro’s slump was primarily due to surging European gas prices. “The strikes in Norway certainly don’t help and I think it’s the layering of these risks that’s making it increasingly difficult to be more optimistic,” she said.
“The dollar remains this primary safe haven . . . and that is a factor which is exacerbating the [euro] movement. People want dollars in times of stress and anxiety,” she added.
Guilhem Savry, head of macro and dynamic allocation at Unigestion, suggested stock markets still had further to fall. “The recessionary theme has made a comeback,” he said. “Although markets are now starting to price in a cooling of inflation and central bank hawkishness, we have yet to reach the lows in equity markets where we would be comfortable to re-engage risk.”
German government debt rallied on Tuesday, with the yield on the 10-year Bund — seen as a proxy for borrowing costs across the eurozone — dropping 0.14 percentage points to 1.2 per cent. The two-year yield slipped 0.17 percentage points lower to 0.46 per cent.
Elsewhere, the yield on the 10-year US Treasury note lost 0.09 percentage points to 2.81 per cent. Bond yields fall as their prices rise.
Yields on Bunds and Treasury notes had marched higher earlier this year, as the European Central Bank and the US Federal Reserve signalled aggressive interest rate rises and the planned withdrawal of large bond-buying programmes in a bid to tackle scorching inflation.
The Fed lifted its benchmark rate by 0.75 percentage points in June, its largest such increase since 1994.
But investors have in recent weeks scaled back their expectations of how high the world’s most influential central bank will raise borrowing costs in the coming months, amid mounting evidence of an economic slowdown.
Futures markets indicate that the Fed is now expected to lift rates to 3.3 per cent by early 2023, down from projections three weeks ago of 3.9 per cent.
Details of the Fed’s most recent monetary policy meeting, due to be published on Wednesday, may give further clues about the extent to which the central bank is willing to tighten monetary policy. A closely watched US jobs report on Friday will also signal the level of heat in the country’s labour market, a criterion that may also influence Fed decision-making.
Additional reporting by Nikou Asgari