London (AFP) - The euro on Tuesday slumped to its lowest level since 2002 and European stock markets sank as growing recession risks sent shockwaves around the region.
The shared currency fell as low as $1.0261, threatening a push towards dollar parity.
It also dived as investors eyed aggressive interest rate hikes by the US Federal Reserve in its fight against inflation, in contrast with the European Central Bank, seen as planning more modest increases.
The pound also slumped to a two-year low below $1.20.
Stock indices in Frankfurt, London and Paris shed more than two percent in afternoon trading on heightened fears of a prolonged economic downturn across Europe.
Economic growth in the eurozone floundered in June, a key survey showed Tuesday, hit by soaring consumer prices.
S&P Global's closely-watched monthly purchasing managers' index (PMI), which measures corporate confidence, fell to 52.0 in June from 54.8 in May.
Nevertheless, the reading, which was a 16-month low, remains above the 50-point level signalling expansion.
"Growing fears of a recession are hammering the euro lower, whilst the dollar is soaring on bets that the Fed will keep hiking rates aggressively to tame inflation," City Index analyst Fiona Cincotta told AFP.
"Today's PMI data from Europe have highlighted the risk of slowing growth at the end of the second quarter and raise the prospect of a contraction in activity in the coming months."
Walid Koudmani, chief market analyst at XTB, said "the ECB is caught between a rock and a hard place as it needs to raise interest rates to tackle inflation and boost its currency while simultaneously supporting struggling economies which are just recovering after two years of pandemic related issues."
By contrast, most Asian stock markets closed higher on growing speculation that US President Joe Biden is about to roll back some of the Trump-era tariffs on Chinese goods.
Such speculation failed to boost Wall Street, with the Dow slumping 1.5 percent in opening trading as US investors came back from a three-day holiday weekend.
The mood on trading floors has become increasingly gloomy in recent months as observers warn that sharp interest rate hikes aimed at curbing price rises could cause a contraction, compounding uncertainty caused by Russia's war in Ukraine.
Investors were keeping tabs also on fresh Covid outbreaks in China that have triggered city-scale lockdowns.
Oil prices slumped more than five percent as recession worries outweighed supply concerns.
Key figures at around 1330 GMT
Euro/dollar: DOWN at $1.0263 from $1.0431 Monday
Pound/dollar: DOWN at $1.1945 from $1.2116
Euro/pound: DOWN at 85.92 pence from 86.09 pence
Dollar/yen: UP at 135.83 yen from 135.69 yen
London - FTSE 100: DOWN 2.2 percent at 7,074.46 points
Frankfurt - DAX: DOWN 2.6 percent at 12,448.15
Paris - CAC 40: DOWN 2.6 percent at 5,802.75
EURO STOXX 50: DOWN 1.8 percent at 3,406.91
New York - Dow: DOWN 1.5 percent 30,637.91
Tokyo - Nikkei 225: UP 1.0 percent at 26,423.47 (close)
Hong Kong - Hang Seng Index: UP 0.1 percent at 21,853.07 (close)
Shanghai - Composite: FLAT at 3,404.03 (close)
Brent North Sea crude: DOWN 5.6 percent at $106.93 per barrel
West Texas Intermediate: DOWN 5.1 percent at $102.91 per barrel
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