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A renewed worry that an energy shock would keep prices rising and makes a recession in Europe sent the euro to a new 20-year low. Meanwhile, the value of the Chinese yuan fell to a level not seen in two years, while the value of the British pound momentarily approached levels not seen since March 2020.

The European Union's business activity report wasn't as dismal as expected, lifting the euro off its 20-year bottom of $0.99005 seen early in the day. On Tuesday, Citibank's head of CEEMEA strategy Luis Costa said on CNBC's "Squawk Box Europe" that the bank was "certainly inclined toward additional euro depreciation from where it is today" in terms of both outlook and trading.

The single currency fell to $0.9901, weighed down by fears of a US interest rate hike before this week's highly anticipated statements from Federal Reserve Chair Jerome Powell.

The common currency hit a new low Monday, plunging below parity on worries of a global economic slowdown. This was the currency's lowest point in physical circulation since it was introduced in 2002.

The latest blow came in August, when S&P Global's carefully monitored monthly composite purchasing managers' index (PMI), which gauges company confidence, slid below the crucial 50-point barrier.
 

What are the reasons behind the Euro value decrease?

Conflict in Ukraine and rising prices in both areas are two of many variables influencing the relative value of the euro and the dollar.

As a result of heat waves and unexpected maintenance on Russia's major pipeline to Germany, Nord Stream 1, wholesale gas prices in Europe spiked on Monday. In addition to the United States and Europe, Costa argues that we need to go elsewhere to get the whole picture.

The downturn in China adds another degree of difficulty, he added, since it will have a considerably greater effect on Europe than on the United States. Stocks in the area slid because of persistent concerns that the Federal Reserve in the United States would keep raising interest rates to combat inflation. The currency strengthens versus its rivals when US interest rates rise.

The concern that Russia would temporarily stop gas supply to Europe kept the price of natural gas at a premium on Tuesday. The price per megawatt-hour for the Dutch TTF Gas Futures contract was 274.50 euros, which was down marginally from the previous trading day. After major producer Russia invaded neighboring Ukraine in March, gas prices skyrocketed to all-time highs.

Even still, commercial activity in the Eurozone shrank for a second consecutive month in August, and the gloomy outlook kept the Euro weak.

Currency was down 0.15% at $0.9926 at 11:16 GMT, maintaining a position below the psychological $1 threshold. According to Berenberg's senior economist Holger Schmieding, "the increased fears about Europe after the jump in gas prices is the fundamental reason why the euro is down."

According to FactSet, the lowest value the euro reached was $0.9992, before it rose to $1.0004. After falling below parity for the first time in 20 years in mid-July, the currency has since recovered as the dollar's surge has slowed.

When trying to see the whole picture, Costa thinks it's important to go beyond just Europe and the United States. The downturn in China adds another degree of difficulty, he added, since it will have a considerably greater effect on Europe than on the United States.

The country's GDP grew by 0.4% in the second quarter, which was far lower than analysts had predicted. Since the year 2020 began, the world's second-largest economy has been hampered by the fallout of the deadliest Covid-19 epidemic in the country's history.
 

More Things To Know

Natural gas is more effective than Kalashnikov in the hands of Russian politicians, according to PVM analyst Tamas Varga. According to Societe Generale analyst Kit Juckes, the single currency has been severely affected by this news since the union is so reliant on imported Russian gas.

Concerns grew when Russian gas giant Gazprom said on Friday that it will shut down the Nord Stream pipeline at the end of the month for repair, halting the network's vital gas supply to Europe. The potential of maintenance on the major Russian pipeline to Europe spooked markets on Monday, driving up wholesale gas prices in Britain and the Netherlands.

At the end of the month, Russia will cut off natural gas supplies to Europe through the Nord Stream 1 pipeline, serving as yet another reminder of the vulnerable situation of Europe's energy supply.

However, Kit Juckes, a macro strategist at Societe Generale, believes that the dollar's recent surge may be temporary.

In an email sent out Tuesday morning, he speculated that "maybe, all in all, the dollar surge has gone about as far as it can on the present news."

The analysts think Europe can bounce back from these so-called "woes." The S&P 500 and the Nasdaq each lost more than 2% of their value on Monday, plunging Wall Street into the red.

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