The euro fell as much as 0.7 percent to a low of $0.9888 in afternoon trade in Asia on Monday, marking the first time the single currency has fallen below the $0.99 mark since 2002. The sudden drop below the limit came after Russia indefinitely suspended natural gas flows through the Nord Stream 1 pipeline, further curtailing Europe’s energy supplies and heightening risks of a recession in the bloc. State-owned Gazprom said the suspension was due to a technical error. However, the announcement came hours after G7 countries announced plans to move ahead with a price cap on Russian oil exports in a bid to reduce revenue flowing to Moscow that could be used to finance its invasion of Ukraine. Equity futures reflected a worsening outlook for European economies, with the Euro Stoxx 50 down more than 3 percent when markets opened in Frankfurt and Paris. The FTSE 100 was expected to fall about 1 percent. Analysts said any “weaponization” of Russian gas by cutting off flows through Nord Stream 1 could significantly complicate the European Central Bank’s plans to normalize monetary policy.

“The ECB’s work is greatly complicated by the uncertainty around Russian gas supplies,” said Brian Martin, head of G3 economic research at ANZ, adding that a 0.5 percentage point rise in the ECB’s benchmark rate had already been priced in this week. “Moscow’s decision not to restart natural gas flows through the Nord Stream pipeline raises downside risks to growth while raising the outlook for inflation.” Markets in Asia focused on the tightening of Covid-19 restrictions in China, where many cities are under lockdown following outbreaks of the virus. Hong Kong’s benchmark Hang Seng was down 1.6 percent in afternoon trade, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks was down 0.6 percent. The euro hit parity with the dollar in July for the first time in 20 years as investors sought haven assets in a worsening global economic environment.