The euro sank to within a whisker of parity with the dollar today and stock markets fell as the prospect of further central bank tightening and worries about the health of economies worldwide unnerved investors.
The dollar’s role as the safe-haven go-to currency for investors worried about the economic outlook has been burnished in recent weeks, with the US currency roaring to two-decade highs against multiple currencies.
The euro has been particularly vulnerable given the impact of an ongoing spike in natural gas prices on the regional economy and the war in neighbouring Ukraine, and with the European Central Bank behind rivals in raising interest rates.
By 0725 GMT, the euro was down 0.3% at a low of $1.0004, its weakest in more than 20 years.
The dollar index gained 0.3% to 108.48, while sterling hit another two-year low and the yen was not far off its weakest in more than two decades.
Mizuho analysts said the move towards parity was happening as “recession in the euro zone is priced in”, and said the backdrop suggested little to improve risk sentiment.
“Either way, there looks to be little preventing euro/dollar breaking parity in the relatively near term,” they wrote.
The focus for this week will be macro data including US consumer inflation on Wednesday, and comments from Federal Reserve officials as investors look for clues on the outcome of the Fed’s upcoming policy meeting before the pre-meet blackout period.
A high inflation reading would add pressure for the Fed to step up its already aggressive pace of interest rate increases.
In equity markets, the Euro dropped 0.7%, while German’s DAX was off 0.8% and Britain’s FTSE 100 by 0.44%.
US futures markets also pointed to a weaker open.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.3% to its lowest level in two years, while Japan’s Nikkei lost 1.8%.
Also high on investors’ list of worries is the fact that a growing number of Chinese cities, including the commercial hub Shanghai, are adopting fresh Covid-19 curbs from this week to rein in new infections after finding a highly transmissible Omicron subvariant.
The surging cost of energy in Europe is also a major fear as the biggest single pipeline carrying Russian natural gas to Germany entered annual maintenance, with flows expected to stop for ten days.
Investors are concerned the shutdown might be extended because of the war in Ukraine, restricting European gas supply further and tipping the struggling euro zone economy into recession.
The yield on benchmark 10-year Treasury notes was at 2.92%, having dropped back below 3% overnight as investors bought safe-haven Treasuries amid a sell-off on Wall Street.
Growth fears were also weighing on oil, despite concerns about tight supply.
Brent crude futures fell 2.2% to $104.73 a barrel, while US West Texas Intermediate crude was at $101.53 a barrel, down 2.44%.
Gold was steady, with spot prices trading at $1,735 per ounce.
Cryotcurrency prices dropped, with Bitcoin last down 1.4% at $19,670.