Weakening euro hits 20-year low against dollar over recession fears, energy crisis

The euro is dangerously close to reaching parity with the dollar, where $1 would buy €1. As of Tuesday afternoon, the euro had shed around 1.6% against the dollar to under $1.03, its lowest mark in 20 years, according to FactSet.

On the bright side, a weakening euro means it is the perfect time for a summer European vacation, where the U.S. dollar will go further during travels to the eurozone. But the currency decline is another sign the 19-country eurozone could be heading toward a recession.

With Europe already facing record-high 8.6% inflation, a weaker euro means imports will cost euro-using nations even more. The concern is amplified at a time when the bloc is facing a looming energy crisis over Russia’s war in Ukraine.

Natural gas prices in Europe this week reached 4-month highs and could be further exacerbated by planned worker strikes in oil fields in Norway and an impending shutdown of Nord Stream 1 pipeline for annual maintenance.

Investor morale in Europe is also at its lowest point in over two years, according to a Sentix survey.

“Situation scores like the current one justify the expectation that a recession is inevitable,” Sentix Managing Director Manfred Hüebner said.

While the euro is in fact weakening, another factor pushing the euro closer to parity with the dollar is the dollar’s strength. As investors run from risky assets amid growing fears of a recession, many are turning to the dollar as a safe haven.