Euro slumps as recession risk stalks eurozone

LONDON — The euro on Tuesday slumped to its lowest level since 2002 and European stock markets sank as growing recession risks sent shockwaves around the region.

The shared currency fell as low as $1.0298, threatening a push towards dollar parity.

It also dived as investors eyed aggressive interest rate hikes by the US Federal Reserve (Fed) in its fight against inflation, in contrast with the European Central Bank which plans more modest increases.

Stocks indices in Frankfurt, London and Paris shed more than 1 per cent in late morning deals on heightened fears of a prolonged economic downturn across Europe.

Economic growth in the eurozone floundered in June, a key survey showed on Tuesday, hit by soaring consumer prices.

S&P Global's closely-watched monthly purchasing managers' index (PMI), which measures corporate confidence, fell to 52 in June from 54.8 in May.

Nevertheless, the reading, which was a 16-month low, remains above the 50-point level signalling expansion.

"Growing fears of a recession are hammering the euro lower, whilst the dollar is soaring on bets that the Fed will keep hiking rates aggressively to tame inflation," City Index analyst Fiona Cincotta said.

"Today's PMI data from Europe have highlighted the risk of slowing growth at the end of the second quarter and raise the prospect of a contraction in activity in the coming months."

By contrast, most Asian stock markets closed higher on growing speculation that US President Joe Biden is about to roll back some of the Trump-era tariffs on Chinese goods.

The mood on trading floors has nevertheless become increasingly gloomy in recent months as observers warn that sharp interest rate hikes aimed at curbing price rises could cause a contraction, compounding uncertainty caused by Russia's war in Ukraine.

Oil prices were mixed as traders assessed the market with demand outstripping supplies.

Investors were keeping tabs also on fresh COVID outbreaks in China that have triggered City lockdowns.