The euro slipped below $0.99 to a fresh 20-year low on Monday after Russia's cutoff of gas supplies to its main pipeline to Europe raised fears of a deepening energy crisis in the region.
The euro has been increasingly linked to natural gas prices in recent months. This is reflected when the euro currency depreciates when the price of energy resources increases.
Europe is currently struggling to stop Russian supplies and build up reserves before winter, but investors think the impact on its economy will be huge.
The euro had fallen to as low as $0.9876 in early European trade before trading at 0.9926 against the US dollar at the time of writing.
"Gas flows have been more constrained than expected and we have seen evidence of the impact on demand affecting activity," said Michael Cahill, strategist at Goldman Sachs (NYSE:GS). "We now expect the Euro to fall further below parity ($0.97) and remain around that level for the next six months," he added.
Other currencies exposed to rising energy prices also fell. In early trade, sterling fell half a percent to a fresh 2-1/2-year low of $1.1444, as investors focused on the announcement of Britain's new prime minister.
The US dollar index, which measures the US dollar against six major currencies, strengthened by 0.28% to 109.828.
Investors will now focus on the European Central Bank (ECB) meeting that will take place on Thursday and the market has priced in an almost 80% chance of a 75 basis point interest rate hike.
The risk-sensitive Australian dollar slipped 0.5% to a seven-week low of $0.6773
