The euro has tumbled to its lowest level against the dollar in two decades caused by investors ditching European assets on fears the bloc will tip into recession soon.
The currency used by 19 European countries – soon to be 20 when Croatia joins the union next January – fell around 1.3 per cent against the dollar to buy $1.028.
Rampant inflation is spreading throughout the Continent, mainly driven by Russia’s invasion of Ukraine sending oil and gas prices soaring as a result of Moscow curbing supplies.
European gas prices climbed again today due to Norwegian energy workers threatening to strike, casting doubt over the security of supply. European countries have turned to Norway to plug energy inventories that were historically sourced from Russia.
Elevated energy costs are curbing production in the bloc and prompting businesses to raise prices, pushing inflation to its highest level since the creation of the euro in 1999 and raising the risk of the area falling into recession.
Investors have also poured into American assets in response to the US Federal Reserve hiking interest rates rapidly. Fed chair Jerome Powell and co lifted borrowing costs 75 basis points at their last meeting and are expected to sign off another steep rise at their meeting later this month.
Higher rates stateside have put downward pressure on the euro by making US-denominated assets more attractive.
A weaker euro will put upward pressure on prices due to European countries having to pay more to import products.