The euro yesterday fell to its lowest level since mid-November after the European Central Bank slashed its 2019 eurozone growth and inflation forecasts, citing “uncertainties” around geopolitical risks and trade rows for the slowdown.
The euro dropped six per cent to 1.123 against the dollar at 1445 GMT after the ECB's latest monetary policy meeting, where the bank also said interest rates would remain at historic lows until at least the end of the year, as had been expected.
The ECB also announced a fresh round of super-cheap loans to banks to help support the eurozone economy and keep credit flowing.
Eurozone equities sunk lower after the announcement. Frankfurt's DAX 30 index retreated 0.9 per cent and the Paris CAC 40 slipped 0.6 per cent.
London's benchmark FTSE 100 index meanwhile lost 0.9 per cent.
Wall Street followed suit, with the Dow Jones Industrial Average dropping one per cent in early trading.
Its decision to keep interest rates unchanged was clear proof that “things are bad in the eurozone, economically speaking”, he said.
The region's current policy composition “is stuck in a low-growth rut and is considered to be at risk of sinking further into that rut”.
Unveiling the updated forecasts, ECB chief Mario Draghi said the bank now expects the eurozone's economy to expand by just 1.1 per cent this year, down from the previous estimate of 1.7 per cent.
“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi told reporters in Frankfurt.
He also said inflation would slow to 1.2 per cent this year, compared with the 1.6 per cent previously forecast, pushing the ECB farther from its target of just under 2.0 per cent.
Asian markets stuttered with no fresh news on the China-US trade front and as investors turned their attention to further signs of weakness in the global economy.
A surge in the US trade deficit could also spur President Donald Trump to ratchet up his protectionist agenda, even as he zeroes in on an agreement with China.
The pound struggled as British and EU officials said talks to hammer out a deal that Prime Minister Theresa May could push through Britain's parliament had been “difficult”, with a solution still elusive.
With just three weeks before the expected divorce day, the customs border in Northern Ireland remains a major sticking point and there continue to be worries that Britain will crash out of the EU without an agreement in place, which could batter the economy.
However, traders take some comfort in the fact that if MPs reject whatever deal is presented to them in a vote next week, they will vote in the following days on whether to leave with no deal or delay Brexit.