Euro tumbles after dismal PMIs, dollar slips against yen

LONDON/NEW YORK: The euro fell across the board on Thursday, as weaker-than-expected German and French PMI data confirmed the euro zone economy was struggling to gain traction, prompting traders to reduce bets on a sharp interest rate hike by the European Central Bank.

High prices in the euro zone meant demand for manufactured goods fell in June at the fastest pace since the start of the coronavirus pandemic in May 2020, with S&P Global’s major factory purchasing managers’ index (PMI) falling to a near two-year low 52.0 from 54.6.

“The (PMI) manufacturing/services ratio tends to be a good barometer for pro-cyclical currencies. Relative to the U.S., the ratio has fallen sharply,” senior FX strategist Mazen Issa said in a research note.

“This dynamic is generally consistent with further dollar resilience. This is likely to strengthen as recession fears mount,” he added.

After the data, money markets were pricing in around 30 basis points (bps) of rate hikes in July, compared with 34 bps on Monday. Traders also cut their forecast for the ECB to raise interest rates by the end of 2022 to 161 basis points from 176 basis points on Monday.

The euro was down 0.4% at $1.0522. Earlier, it fell below the key $1.05 level for the third time this week. EUR/JPY also fell 1.6%

The euro’s decline lifted the greenback off earlier lows and pushed the greenback higher against other currencies after cautious comments from Federal Reserve Chairman Jerome Powell on Wednesday weighed on sentiment.

The dollar index edged up to 104.34, up 0.1%.

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While markets are firmly betting the Fed is on track for another big 75 basis point rate hike in July, some analysts believe the European Central Bank and Bank of England will take a more dovish path of rate hikes that could hurt growth.

Federal Reserve Chairman Jerome Powell said on Wednesday that a recession is “certainly possible,” reflecting financial markets’ fears that the Fed’s pace of tightening will dampen economic growth.

The Fed chairman also testified in the House of Representatives on Thursday, reiterating his commitment to fighting inflation.

“As long as there’s a debate about whether a recession is going to happen, there’s going to be downside volatility in equities that will ultimately boost the dollar as a safe haven,” said Juan Perez, head of trading at Monex USA in Washington.

The S&P 500 is down 20% since the start of the year, amid turmoil in Ukraine and a slide on Wall Street, while the U.S. dollar index is up 9%.

“President Joe Biden sounds positive in the face of the challenge facing Fed Chair Jerome Powell. Recession is not on their minds, nor is it necessarily the public pledging to tighten monetary policy conclusions should be drawn later,” Perez added.

The dollar was down 1 percent against the yen at 134.84 yen, retreating further from a 24-year high hit earlier in the week.

U.S. data showed that initial jobless claims in the United States fell slightly last week, but are slowing as labor market conditions remain tight.

Initial jobless claims fell 2,000 to a seasonally adjusted 229,000 for the week ended June 18. Economists polled by Reuters had forecast 227,000 applications for the latest week. Initial jobless claims have stagnated since falling to a more than 53-year low of 166,000 in March.

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The dollar index fell following U.S. data.

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Currency bid price at 10:57AM (1457GMT)

Description RIC Last US Close Percent Change YTD Pct High Bid Low Bid

previous changes

Meeting

USD Index 104.2400 104.2200 +0.03% 8.966% +104.7800 +104.0500

EUR/USD $1.0531 $1.0569 -0.35% -7.37% +$1.0581 +$1.0484

USD/JPY 134.4350 136.2100 -1.30% +16.79% +136.2000 +134.2650

EUR/JPY 141.56 143.94 -1.65% +8.62% +143.9800 +141.4200

USD/Switzerland 0.9575 0.9617 -0.42% +4.99% +0.9678 +0.9568

GBP/USD $1.2271 $1.2265 +0.04% -9.27% ​​+$1.2294 +$1.2171

USD/CAN 1.2962 1.2947 +0.13% +2.53% +1.2987 +1.2937

AUD/USD $0.6917 $0.6924 -0.09% -4.84% +$0.6928 +$0.6870

EUR/Swiss 1.0084 1.0159 -0.74% -2.75% +1.0165 +1.0069

EUR/GBP 0.8580 0.8615 -0.41% +2.14% +0.8641 +0.8575

NZD $0.6300 $0.6286 +0.24% -7.95% + $0.6310 + $0.6249

USD/USD

USD/Norway 9.9480 9.9045 +0.63% +13.13% +10.0200 +9.8980

EUR/Norway 10.4785 10.4694 +0.09% +4.65% +10.5295 +10.4415

USD/Sweden 10.1708 10.0944 +0.41% +12.78% +10.2077 +10.0812

EUR/Sweden 10.7133 10.6697 +0.41% +4.68% +10.7283 +10.6605

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