The euro fell against the dollar on Monday as business activity readings painted a grim picture of the euro zone economy and fuelled bets on more interest rate cuts by the European Central Bank (ECB) this year.
The common currency dropped 0.4% to $1.1122, recovering from losses of as much as 0.7% earlier in the session but still slipping from late August’s 13-month high that was driven by bets of faster U.S. monetary policy easing.
A survey compiled by S&P Global showed euro zone business activity unexpectedly shrank this month as the bloc’s dominant services industry flat-lined, while a downturn in manufacturing accelerated.
The slump appeared broad-based, with Germany’s decline deepening, while France returned to contraction following August’s boost from the Olympic Games.
“The data certainly keeps the door open to a rate cut in October – whether they step through that door, it’s too early to say, but it’s a pretty grim reading,” said Kenneth Broux, head of corporate research, FX and rates at Societe Generale.
“The Fed shifted from inflation to growth and the ECB, at some point, will make that transition as well.”
Traders now anticipate cuts of around 44 bps this year from the ECB, compared with around 38 bps last week, implying that they expect a stronger chance of the central bank cutting rates again in October.
The U.S. dollar, which measures the greenback against six major currencies, rose 0.1% to 100.92 – continuing to stay above the one-year low it hit last week.
In weekend news, U.S. House Republicans unveiled a three-month stopgap bill to avert a government shutdown.
(Reuters)