By Chuck Mikolajczak
NEW YORK (Reuters) – The euro fell against the dollar on Monday as reports on euro zone economic activity disappointed and declines briefly extended after U.S. data showed activity in the region was holding steady, ahead of a flurry of remarks from Federal Reserve officials this week.
Weak eurozone data has confirmed expectations for further rate cuts by the European Central Bank this year, with markets now pricing in a roughly 77% probability of a cut of at least 25 basis points (bps) at the central bank’s October meeting.
A survey by S&P Global showed that economic activity in the eurozone fell sharply this month as the bloc’s dominant services sector stagnated and a slowdown in manufacturing accelerated.
The recession appeared to be broad-based, with Germany’s decline deepening while France slipped back into crisis after an August boost driven by the Olympics.
In the US, economic activity was steady in September, but average prices charged for goods and services rose at the fastest rate in six months, suggesting inflation could accelerate in the coming months.
The data comes after the Federal Reserve cut interest rates by 50 basis points last week. Several officials commented on the decision on Monday, saying it was intended to maintain an emerging and well balance in the economy.
S&P Global said the preliminary US Composite PMI Output Index, which tracks the manufacturing and services sectors, was little changed at 54.4 this month from a final reading of 54.6 in August, with a reading above 50 signaling expansion.
which tracks its performance against a basket of currencies including the yen and the euro, was up 0.05% at 100.83 after rising as high as 101.23 during the session. The euro fell 0.39% to $1.112, on track for its biggest daily decline since Sept. 9.
“A lot of our focus is on interest rate expectations. Most people expect the Fed to lead and be relatively more aggressive in cutting rates. Historically, that’s been a reasonable interpretation,” said Michael Green, portfolio manager and chief strategist at Simplify Asset Management in New York.
“Anything that could cause the market to re-price itself closer to where the Fed is would likely provide at least some benefit to the U.S. dollar.”
The dollar fell for a third straight week last week after the Federal Reserve cut interest rates. Several Federal Reserve officials are scheduled to speak this week, including Federal Reserve Chairman Jerome Powell and Governors Michelle Bowman, Lisa Cook and Adriana Kugler.
Sterling rose 0.2% to $1.3345, after rising to $1.33595, its highest level since March 3, 2022, after a similar survey showed British businesses saw growth leisurely this month, although it was less severe than in the euro zone.
The Bank of England kept interest rates unchanged on Thursday, with its governor saying the central bank must be “careful not to cut them too quickly or too much”.
Against the Japanese yen, the dollar fell 0.37% to 143.38 after the Japanese holiday. The greenback hit a two-week peak of 144.50 yen last week after the Bank of Japan (BOJ) left interest rates unchanged and indicated it was in no hurry to raise them again.
For the yen, a ruling party vote later this week to choose a fresh prime minister makes the BOJ’s job hard in the coming months, with frontrunners holding different views on monetary policy. An early election is seen as likely in tardy October.
Later this week, the Swiss National Bank is expected to cut interest rates by 25 basis points, followed by the Riksbank, which is also set to cut by 25 basis points.
