FOREX-Euro pulls back after gloomy PMIs

Band Samuel Indyk

LONDON, July 22 (Reuters)The euro continued its retreat on Friday from a more than two-week high as disappointing activity data from France and Germany pushed the single currency lower, a day after the European Central Bank raised interest rates for the first time since 2011.

German business activity contracted unexpectedly in July, while French manufacturing activity contracted and growth in services slowed, according to preliminary purchasing managers’ (PMI) surveys.

Analysts said the euro was in trouble as the eurozone economy appeared to be heading for a recession.

“The US economy is slowing, but Europe is slowing faster. That’s why the forex market continues to be underweight the euro,” said Viraj Patel, macro strategist at Vanda Research.

The euro had already fallen slightly as the ECB’s new tool to protect indebted states from soaring borrowing costs, announced on Thursday, failed to impress investors, with many worried about a lack of details and conditions that could make it difficult for countries like Italy to use.

Analysts also said the removal of the ECB’s forward guidance on rates could make the central bank more dependent on data.

“Maybe the ECB can do another hike in September, but judging by the direction of the European economy, I don’t think they’ll be able to talk about rate hikes in December or early next year,” he added. Patel added.

At 08:28 GMT, the euro EUR=EBS was down 0.8% at $1.0152, pulling back further from Thursday’s high of $1.0279 after the ECB’s sharp 50 basis point rate hike.

The dollar index =USD – which measures the greenback against six major peers, with the euro being the most heavily weighted – was last up 0.52% at 107.17, after falling 0.34% on Thursday.

For the week, the index remains down 0.79%, the biggest drop since May 29 and its first losing week in four, as disappointing US data throughout the weakness dampened concerns. expectations of a sharp 100 basis point hike from the Federal Reserve next week.

Traders are now placing an 83.7% chance that the Federal Open Market Committee will hike rates 75 basis points on July 27, with a 16.3% chance of a full one-point hike.

Elsewhere, the pound sterling GBP=D3 slipped 0.4% to $1.1955, reducing its gain for the week to 0.72%, still the highest since late May.

The dollar rebounded 0.2% to 137.60 yen JPY=EBS with the Japanese currency on track for its first weekly gain against the greenback in eight weeks.

The risk-sensitive Australian dollar fell 0.2% to $0.69225 and the New Zealand dollar was also down 0.2% to $0.62395.

World exchange rates

(Reporting by Samuel Indyk in London and Kevin Buckland in Tokyo; Editing by Susan Fenton)


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