The single currency fell to $0.9901 but then recovered its losses and returned to parity with the dollar in afternoon trading.
The dollar has risen against other currencies as markets speculate the central bank will tighten monetary policy further ahead of Federal Reserve Chairman Jerome Powell’s speech later this week. .
Rising interest rates boost the US dollar as it makes dollar-denominated bonds more attractive to investors.
But the euro is also weighed down by a bleak outlook for the eurozone economy as Russia’s war in Ukraine has sent energy prices skyrocketing.
Shares were already trading below par on Monday as recession fears plunged them to their lowest level since 2002.
In the latest blow, S&P Global’s closely watched monthly Composite Purchasing Managers Index (PMI) showed that economic activity in the Eurozone fell for the second month in a row in August.
“Eurozone PMIs confirm fears of an impending recession in Europe on the back of high inflation and the energy crisis,” Citi analyst Luis Costa said.
“Energy stress remains an overarching threat to the stability of the European economy,” he added.
Equities in the region rocked amid stubborn fears that the US Federal Reserve (Fed) will continue to raise rates to fight inflation.
Rising US interest rates also boost the dollar against other currencies.
Natural gas prices fell on Tuesday but continue to rise on concerns about Russia’s disruption of gas supplies to Europe.
The Dutch TTF gas futures contract fell from Monday to €263.71 per MWh.
Gas hit a record peak in March after major producer Russia launched an invasion of neighboring Ukraine.
This has caused domestic energy prices to skyrocket, fueling decades of high inflation and prompting monetary tightening around the world.
“For Russian politicians, natural gas has become painfully clear a much more effective weapon than the Kalashnikov in the hands of soldiers,” said PVM analyst Tamas Varga. .
According to Societe Generale analyst Kit Jukkes, this has dealt a heavy blow to the single currency as the bloc relies heavily on imported Russian gas.
Fears mounted on Friday after Russia’s Gazprom announced that the Nord Stream pipeline would be closed for maintenance at the end of the month, cutting critical gas supplies in Europe.
“The euro’s problem is the threat of continued tightness in gas supplies and the cost of replacing Russian gas,” Jukkes said.
Asian markets fell again on Tuesday as traders became more worried about rising US interest rates.
A day after closing in the red, Wall Street indexes were mixed at Tuesday’s open, the Dow Jones Industrial Average was flat while the S&P 500 and tech company Nasdaq rose.
At a symposium of central bankers and treasurers in Jackson Hole this week, the focus will be on what Fed Chairman Jerome Powell will say about his plans to tackle prices, with many officials predicting a recession. It is possible to fall into
Oil prices, which have fallen for weeks as recession fears hit demand forecasts, could lead OPEC and other major producers to cut production because of ‘volatility’ in the oil market, Saudi Arabia said. suggested and then repulsed.