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Euro falls as Eurozone economies dip

Wednesday, October 24 09:47:05

The euro fell to a one-week low against the dollar today as data showed business activity in the euro zone slowing more than expected, while German business sentiment slid more than forecast. Provisional purchasing managers (PMI) surveys pointed to a deepening euro zone downturn, with growth slowing in Germany and France as well as in smaller peripheral countries as euro zone business activity suffered its worst month since mid-2009. The latest German Ifo survey was also weak, with the business climate index unexpectedly falling to 100.00. The euro lost 0.4 percent to $1.2929, dropping below Tuesday's low of $1.2952 to take it well below the peak of $1.3140 hit early last week.

Its falls helped push the dollar index, which measures the dollar's value against a basket of currencies, to a two-week high of 80.112. "I can't see where southern Europe is going to get the growth from that it needs to meet its fiscal targets," said Niels Christensen, currency strategist at Nordea in Copenhagen. "Investors are not very happy to put on long euro positions because of the uncertainty in Spain and worries about the euro zone economy."

He said any move higher in the euro would be short-lived, adding he expected it to trade well below $1.30 in three to six months time. The euro has gained recently on expectations Spain will apply for a bailout, allowing the European Central Bank to buy its bonds. But any gains have been hampered by uncertainty about when it will do this. Weak euro zone PMIs offset earlier data out of China, which signalled a strengthening economic recovery as the PMI index climbed to a three-month high of 49.1 in October. Enthusiasm about the data was muted, however, as the index remained below the 50 level that separates growth from contraction. Later today, investors will turn their focus to the U.S. Federal Reserve's policy statement due at 1815 GMT. The Fed appears intent to stick to its bond-buying stimulus, having already indicated it would take more than a modest show of economic strength for policymakers to begin taking their foot off the gas.

The dollar edged lower against the yen but stayed close to a three-month high as the prospect of more Bank of Japan monetary easing being announced at a policy meeting on Oct. 30 weighed on the Japanese currency. Further progress for the dollar was hampered, however, by reported heavy demand to sell it above 80 yen, traders said. The dollar was down 0.2 percent at 79.68 yen, having hit a high of 80.02 yen. ( C) Reuters