LONDON — The euro fell to its lowest level in more than two months against the dollar on Wednesday and its lowest in 12 months against the pound sterling, after survey data showed economic activity in Germany and the euro zone had collapsed more than expected in August.
The HCOB’s Composite Purchasing Managers’ Index (PMI) for the euro zone, compiled by S&P Global and considered a good barometer of overall economic health, fell to 47.0 in August from 48.6 in July, its lowest since November 2020.
The services PMI fell to 48.3 from 50.9, for the first time below the 50 mark that separates growth from contraction this year.
The German composite figure fell to its lowest level since May 2020, as the growing slowdown in manufacturing output was accompanied by a further contraction in services activity.
The single currency weakened after the German data, hitting its lowest level against the dollar since June 15 at $1.0812 and its 12-month low against the pound at 84.93 pence.
“The drop in services activity was sharp and we saw an environment of euro weakness,” said Niels Christensen, chief analyst at Nordea.
“If inflation data continues to soften, the European Central Bank could end its tightening cycle in September.”
The dollar hit a two-month high after the data was released, with investors also turning to Federal Reserve Chairman Jerome Powell’s speech this week at the Jackson Hole symposium for indications of the trajectory of monetary policy.
The dollar index, which measures the US currency against six of its rivals and is the most heavily weighted by the euro, hit 103.80, its highest level since June 8. The index is up 1.8 percent in August, on course for a second milestone. months of losing streak.
A recent string of strong economic data in the United States has helped ease fears of a looming recession, but with inflation still above the Fed’s 2% target, investors are concerned that the central bank will maintain its rate in a higher range for longer.
“There’s no reason for Powell to close the door on further rate hikes or make a firm promise of additional hikes,” Nordea’s Christensen said.
“The US economy is slowing down a bit but holding up much better than Europe and that could give the dollar the upper hand.”
Markets estimate there is about an 85% chance the Fed will hold firm at its policy meeting next month, but the odds of the US central bank raising interest rates again this year towards the end of the year increased slightly.
The yen strengthened 0.3% to 145.445 to the dollar, but is not far off the nine-month high of 146.565 hit last week, leaving traders on edge as they watch warily for any signs of a downturn. ‘intervention.
When the dollar surged above 145 yen last year, it sparked intervention, and speculation began to mount that Tokyo could soon intervene in the market to support its currency again if the yen weakens further.
“Despite being close to last fall’s FX intervention level, we view the prospect of intervention below USD/JPY 150 as unlikely and believe the pair needs to get closer to 155 before the Ministry of Finance (Japan’s Ministry of Finance) is considering pulling the trigger,” said Colin Asher, senior economist at Mizuho.
This time and in 2022, monetary intervention by itself would not be a fundamental solution to yen weakness but could only buy time, said strategists at BofA Global Research.
“The main difference is that even though Japan had no control over the root cause of the rise in the dollar and the yen in 2022, it can, to some extent, decide how long to buy time in cooperation with the Bank of Japan, as the BOJ controls short selling -end of the Yen yield curve.
Another Asian currency that worries investors is the Chinese yuan, which is down more than 5% this year against the dollar, largely due to concerns about the country’s worsening real estate crisis, which is exerting a additional downward pressure on China’s post-pandemic economic recovery.
The spot yuan opened at 7.2870 to the dollar on Wednesday and last changed hands at 7.2920.
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