PMIs across Europe showed manufacturing activity rebounding from coronavirus-induced lows, boosting market sentiment.
In Germany, Europe’s largest economy, output grew at its fastest pace since February 2018, while in France it contracted. Germany expects the economic devastation caused by the COVID-19 pandemic to be less severe this year than originally feared. Berlin had revised upwards its 2020 forecast to a decline of 5.8% from a previous estimate of -6.3%. That would still represent the biggest economic slump since World War Two. The German economy contracted by 5.7% in 2009 as the global financial crisis unfolded.
The euro zone economy has experienced a strong recovery in the third quarter. However, the most recent incoming data have been less robust, ECB Vice President Luis de Guindos said.
Eurozone inflation data fell well below expectations in August, turning negative for the first time since May 2016. The data raised chances that the European Central Bank will have to inject yet more stimulus to generate price growth.
Annual inflation in the 19 countries sharing the euro fell to minus 0.2% in August from 0.4% in July.
Commerzbank analyst Esther Reichelt said inflation data highlights the difference between the Fed and the ECB.
ECB policymakers next meet on Sept. 10 and investors do not expect major policy moves. However, economists still expect further stimulus before the end of the year.
START TRADINGForex – PMIs boost economic rebound hopes
U.S. political uncertainty ahead of November’s presidential election has also weakened the greenback, with the euro the biggest beneficiary. The dollar’s decline saw several other currencies hit milestones. PMIs boosted market sentiment.
The dollar index was down 0.4% at 91.8811, dropping below 92 for the first time since May 2018. Dollar weakness deepened in the wake of the Fed’s new policy framework steering expectations of lower interest rates for longer.
Against the Japanese yen, the greenback eased 0.2% to 105.77 yen. The Japanese currency had jumped last week after Japanese Prime Minister Shinzo Abe resigned on health grounds.
The dollar fell to 0.9002 Swiss francs, a shade above the lowest in more than five years.
The Australian dollar earlier hit its highest since August 2018, at $0.7413 before the rally fizzled.
The euro rose to a two-year high of $1.19975. At 0800 GMT it was at $1.199, up 0.4% since New York’s close, as a dollar sell-off continued. The common currency reached $1.1997 in Asian trading hours, its strongest since May 2018. This took its gains to 7.5% in three months.
Sterling rose to eight-month highs against the dollar, strengthening to as much as $1.3465 at 1028 GMT. Broad-based dollar weakness lifted pound to eight-month highs before Bailey’s speech. The British currency was up around 0.3% versus the euro.
Oil prices gained, reversing overnight losses. Brent crude futures climbed 57 cents to $45.85 a barrel at 0805 GMT. U.S. WTI crude futures rose 56 cents to $43.17 a barrel.
Gold prices also rose, to their highest in two weeks.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money