Euro falls to dollar parity amid fickle gas supplies, economic uncertainty

The euro has struck parity with the dollar for the first time in nearly 20 years before rising slightly as a cut in Russian gas supplies to Europe heightened rears of a recession in the eurozone.

The European single currency hit exactly one dollar – its lowest level since December 2002 – before rising to $1.0023 on Tuesday.

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 European single currency is under pressure from the Federal Reserve hiking US interest rates more aggressively than the European Central Bank.

The dollar has jumped 14 percent against the euro since the start of the year.

The last time the euro was below $1 was on July 15, 2002.

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Russian oil sanctions, energy costs, lockdowns rank on investor worries

Sanctions on oil imports from Russia and the possibility of Moscow's shutting off gas to Europe have led analysts to predict the eurozone will fall into recession, and pushed the euro to a 20-year low and close to parity with the greenback.

The euro has been particularly vulnerable given the impact of an ongoing spike in natural gas prices on the regional economy and the conflict in neighbouring Ukraine, and with the European Central Bank behind rivals in raising interest rates.

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 10 days.

Investors are concerned the shutdown might be extended because of the conflict in Ukraine, restricting European gas supply further and tipping the struggling euro zone economy into recession.

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