Euro hits its lowest level in 20 years due to concerns about the economic outlook

European stocks and US stock futures fell on Tuesday, while the euro hit its weakest level against the dollar in two decades as concerns about the health of the global economy intensified.

The Stoxx Europe 600 regional stock index shed 0.8% after opening higher, while the FTSE 100 shed 1.2%. In Asia, Hong Kong’s Hang Seng closed up 0.1%, trimming earlier gains, while mainland China’s CSI 300 shed 0.1%.

In a sign of worsening sentiment over growth prospects, the euro fell 1.2% against the dollar to $1.0296, its lowest level since 2002.

Guillem Savry, head of macroeconomic and dynamic distributions at Unigestion, suggested that markets will continue to fall. “The recession theme is back,” he said. “While markets are now starting to factor in declining inflation and central bank belligerence, we have yet to reach lows in equity markets where we would be comfortable taking risks again.”

Wall Street S&P 500 and Nasdaq 100 index futures lost 0.6% and 0.7%, with US markets due to open on Tuesday after the weekend.

A line chart of the dollar against the euro showing the euro falling to its lowest level in two decades

In government debt markets, yields on German 10-year bonds, seen as a proxy for the cost of borrowing in the euro area, fell 0.07 percentage points to 1.27%. The yield on short-term two-year bonds fell 0.12 percentage points to 0.51%. Bond yields fall as their prices rise.

Bond and Treasury yields surged earlier this year as the European Central Bank and the US Federal Reserve signaled aggressive interest rate hikes and a planned end to major bond buying programs in an attempt to tackle scorching inflation.

In June, the Fed raised its benchmark rate by 0.75 percentage points, the largest such hike since 1994.

But in recent weeks, investors have lowered their expectations about how high the world’s central bank will raise borrowing costs in the coming months, amid growing evidence of an economic slowdown.

Details of the Fed’s latest monetary policy meeting, due on Wednesday, could provide additional clues as to the extent to which the central bank is willing to tighten monetary policy. Friday’s watchful US jobs report will also reveal the level of tension in the country’s labor market, a yardstick that could also influence the Fed’s decision-making.

The S&P closed higher on Friday, the last trading day before the long weekend, and bond markets rose after a dismal US manufacturing report raised concerns about the economic outlook.