The euro falls to a 20-year low against the dollar as fears of recession grow

A euro currency symbol is on display in the Visitor Center of the European Central Bank (ECB) building in Frankfurt, Germany.

Alex Kraus | Bloomberg | Getty pictures

The euro fell to its lowest level in two decades on Tuesday, falling above 1% before the session reached $ 1.0283.

It comes as fears of a recession in the eurozone rise as gas prices rise and the Ukraine war shows no signs of abating.

Inflation in the eurozone hit a record high of 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 may limit the central bank’s capacity to tighten monetary policy. The July Sentix Economic Index showed on Monday that investor morale across the eurozone with 19 countries has fallen to its lowest level since May 2020, pointing to an “inevitable” recession.

Record high inflation in Europe has been supported by skyrocketing gas prices in recent months.

Natural gas prices in Europe on Monday extended their relentless rise and climbed to heights not seen since early March, as planned strikes in Norway exacerbated market problems with Russian supply cuts. The gas price for the first month of the Dutch TTF hub, a European benchmark for natural gas trading, was last traded at 7.8% at 175.5 euros ($ 180.8) per megawatt-hour.

All these factors have converged to hit the euro hard. The currency of the euro area has lost over 9% of its value against the dollar since the beginning of the year.

The strength of the dollar continues in the meantime, while risk-averse investors seek a safe haven, and the US Federal Reserve is embarking on what appears to be an aggressive rate hike regime.

After raising benchmark interest rates by three-quarters of a percentage point in June, Fed Reserve Chairman Jerome Powell said the central bank could raise interest rates by a similar amount next month.

– CNBC’s Sam Meredith contributed to this report

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