Euro falls to 2-year low as oil prices surge

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Euro falls to 2-year low as oil prices surge

On Tuesday, rising concerns about a European recession hit stock markets as the euro fell to a two-decade low and the pound fell to its lowest since the start of the epidemic.

As natural gas prices soared, the strain on the European economy was intensified, as shares fell in London and across Europe.

The single currency fell by 1.5% to $1.025 against the US dollar, the lowest since late 2002. The pound fell below the $1.20 mark to a two-year low of $1.19, the lowest point against the dollar since March 2020.

Since mid-May, oil tumbled to its lowest since mid-May, with Brent crude falling by more than 9% to below $103 a barrel and US crude dropping through the $100 a-barrel mark.

In London, mining stocks, oil producers and airlines fell by 2.8%, or 207 points, to 7025, according to the FTSE 100 share index. The North Sea oil producer Harbour Energy slumped 9.6%, while Shell fell 8.5% and Anglo American and Glencore lost 8%.

Investors are anxious that rate hikes by central banks to tackle soaring inflation will push economies into a recession. Analysts have warned that further disruption to Russian energy supplies would cause a European downturn.

Neil Wilson of Markets.com said that everyone is looking for peak inflation but we are probably at the point where it's most dangerous as it becomes sticky.

High and sticky inflation is the worst combination because expectations have been unanchored. This will cause the Federal Reserve and other central banks to inflict more pain. Concerns over the economic outlook was added to by a jump in natural gas prices on Tuesday after strike action forced Norway s Equinor to shut down three oil and gas fields.

A surge in natural gas prices upset the uneasy calm, the panic crept back in on Tuesday, said Raffi Boyadjian, lead investment analyst at XM.

Boyadjian said a strike at several gas fields in Norway is fuelling the supply concerns, as is the threat of Russia cutting off gas supplies to Germany and other European importers.

A survey of purchasing managers showed that business growth in the eurozone has slowed to a 16 month low as manufacturing output fell and the cost of living crisis hit spending on services.

After Independence Day, stock prices fell in New York as traders returned to their desks. The S&P 500 index dropped 2% in early trading, having already slumped by 20% in the first half of the year.

There was a drop in the yield on UK, US and eurozone government bonds on Tuesday, as concerns about economic growth hit risk appetite and increased demand for safer assets.