The euro has rebounded after earlier sliding to a 20-year low and effectively reaching parity against the US dollar as investors worried that an energy crisis in the region will tip the economy into recession.

The single currency reached $1.00005 against the greenback, the lowest since December 2002, after data showed that German investor sentiment plunged below levels at the outset of the coronavirus pandemic in July due to energy concerns, supply bottlenecks and rate hikes from the European Central Bank.

"For all intents and purposes, it effectively reached parity," said Mazen Issa, senior FX strategist at TD Securities in New York.

"It seems like it's a very gloomy outlook for the euro…. a sub-parity paradigm is very much in the cards," Issa said, adding that the single currency could drop to the $0.85-$0.90 area against the greenback.

The dollar is benefiting from expectations that the Federal Reserve has more room to hike rates than peers, which are facing more challenging growth outlooks.

Concerns that Europe could fall into a recession have increased since the biggest single pipeline carrying Russian gas to Germany, the Nord Stream 1 pipeline, began annual maintenance on Monday.

Governments, markets and companies are worried the shutdown might be extended because of the war in Ukraine.

The single currency was last $1.0050, after bouncing from the $1 level, which some analysts attributed to technical factors relating to options activity and short-covering.

Neil Jones, head of currency sales at Mizuho, said markets had been 'short' on the euro in anticipation of a break below parity, but "we didn't get it and now these shorts are buying back into the early New York market."

A possible catalyst that could push the euro back lower could be highly anticipated inflation data on Wednesday, which is expected to show that US consumer prices rose by an annual rate of 8.8% in June.

"We may have to wait for US CPI...or a clearer picture for European energy markets once planned maintenance in Nord Stream comes close to finalising for euro-dollar to break the (parity) threshold," said Simon Harvey, head of FX at Monex Europe.

Meanwhile the Australian dollar rebounded from a two-year low, after being hurt by global growth concerns as China implements new COVID-19 curbs.

The Aussie was last up 0.22% at $0.6752, after earlier falling to $0.6712, the lowest since June 2020.

The US dollar fell 0.55% against the Japanese yen to 137.33, after hitting 137.73 on Monday, the strongest level in 24 years.

In the cryptocurrency market bitcoin dipped 0.46% to $19,858.