The euro fell to its lowest level in 20 years against the dollar on Tuesday, falling more than 1 percent to $1.0283.
Fears of a euro zone recession have grown as gas prices surged and the war in Ukraine showed no sign of abating.
Euro zone inflation hit a record 8.6% in June, prompting the European Central Bank to give markets advance notice of its intention to raise interest rates for the first time in 11 years at its July meeting.
However, growing fears of a recession could limit the ECB’s ability to tighten monetary policy. Investor sentiment in 19 euro zone countries has fallen to its lowest level since May 2020, the Sentix economic index for July released on Monday (4th), signaling an “inevitable” recession.
Natural gas prices have skyrocketed in recent months, fueling record high inflation in Europe.
European natural gas prices continued to rise on Monday, climbing to their highest levels since early March, as a planned strike in Norway fueled fears of a Russian production cut. Front-month gas prices at the Dutch TTF hub, a benchmark for European gas trading, were last up 7.8 percent at 175.5 euros ($180.8) per megawatt-hour.
All these factors come together to deal a heavy blow to the euro. The euro zone currency has lost more than 9 percent of its value against the dollar since the start of the year.
Meanwhile, the U.S. dollar continued to strengthen as risk-averse investors sought safe havens and the Federal Reserve embarked on a seemingly aggressive mechanism for raising interest rates.
After raising the benchmark rate by three-quarters of a percentage point in June, Fed Chairman Paul Powell said the Fed could raise rates by a similar amount next month.