LONDON — The euro dived to a new two-decade
low against the dollar and
European stock markets fell Tuesday as weak economic
data raised fears of recession amid an energy crunch.
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The single currency tumbled to $0.9901, but later
clawed back losses to return above parity with the dollar in afternoon trading
as the greenback was hit by poor US economic data.
The dollar had strengthened this week against other
currencies ahead of a speech later this week by
US Federal Reserve (Fed) chief
Jerome Powell, as markets speculate that the central bank will further tighten
its monetary policy.
Higher interest rates boost the greenback as they
make dollar-denominated debt more attractive to investors.
But the euro is also weighed down by a gloomy
outlook for the eurozone economy as Russia’s war in Ukraine has sent energy
prices soaring.
The shared unit had already plunged below parity
Monday on recession fears to plumb the lowest levels since 2002, when it came
into physical circulation.
In the latest blow, S&P Global’s closely watched
monthly composite purchasing managers’ index (PMI) showed that eurozone
economic activity fell for the second month in a row in August.
“Eurozone PMIs ... confirm concerns of an impending
recession in Europe on the back of high inflation and energy crunch, as they
signal declining activity for two months in a row,” warned Citi analyst Luis
Costa.
“The energy crunch remains an overarching threat to
economic stability in Europe,” he added.
European equities slid amid stubborn worries that
the Fed will carry on ramping up interest rates to fight inflation.
On Tuesday, European natural gas prices fell,
although they remain elevated on fears of a halt to Russia’s gas deliveries.
The Dutch TTF Gas Futures contract stood at 268.45
euros per megawatt hour, down from Monday.
Gas had spiked to record peaks in March after key
producer
Russia launched its invasion of neighboring Ukraine.
That has sparked surging domestic energy bills,
fuelling decades-high inflation that has prompted tighter monetary policy
around the world.
Meanwhile, US natural gas prices hit a fresh 14-year
high on Tuesday.
“As it has become painfully obvious, natural gas is a much
more effective weapon in the hands of Russian politicians than the Kalashnikov
in the hands of their soldiers,” noted PVM analyst Tamas Varga.
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