Euro sinks to 20-year low on recession fears

The euro, which has lost over 9% of its value against the dollar since the start of the year, continued its downfall on Tuesday (July 5), falling to its lowest level in two decades. The joint European currency shed around 1.3% for the session to hit $1.029 by mid-afternoon in Europe, having earlier been as low as $1.028.

The decline came amid soaring gas prices and growing fears of a recession. The front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, was last seen trading up 7.8% to hit 175.5 euros ($180.8) per megawatt-hour due to Norwegian energy workers threatening to strike, casting doubt over the security of supply. 

Fears of a recession in the euro zone have ramped up. The Sentix Economic Index on Monday (July 4) showed investor morale across the 19-country euro zone weakened notably to a 26-month low in July, pointing toward an “inevitable” recession. The investor confidence index slid more-than-expected to -26.4 from -15.8 in June, the survey by Sentix revealed.

Meanwhile, eurozone inflation hit a record 8.6% in June, prompting the European Central Bank to give markets advance notice of its intention to hike interest rates for the first time in 11 years at its July meeting.

Investors have also poured into American assets in response to the US Federal Reserve hiking interest rates. Higher rates stateside have put downward pressure on the euro by making US-denominated assets more attractive.

All of these factors have converged to hit the currency used by 19 European countries – soon to be 20 when Croatia joins the union next January – hard. Investors are ditching European assets on fears the bloc will tip into recession soon.