Euro falls despite strong economic data
2023.02.21 10:06
Euro falls despite strong economic data
By Kristina Sobol
Budrigannews.com – On Tuesday, data showed that manufacturing activity in the euro zone deteriorated this month. However, a rebound in the more inflation-sensitive services sector contained losses and kept the dollar close to six-week highs.
After a surprisingly strong reading of UK business activity, the pound was headed for its largest one-day gain against the euro in five weeks.
Over the past few weeks, strong U.S. labor data and indications of persistent inflation have raised the likelihood that U.S. interest rates will rise further than many anticipated. As a result, the euro has struggled against the dollar in particular.
Global S&P (NYSE:) The euro zone’s flash Composite Purchasing Managers’ Index (PMI), which is thought to be a good indicator of the economy’s overall health, reached its highest level in nine months.
According to the survey conducted on Tuesday, manufacturing output decreased more rapidly this month while an index of activity in the service sector reached its highest level since June.
Jeremy Stretch, global head of currency strategy at CIBC Capital Markets, stated, “Certainly the manufacturing numbers are disappointing, but what I would say is the services numbers are reasonably constructive.”
He stated that strong activity in the services sector would suggest that the European Central Bank might be more likely to raise interest rates, which would support the euro. Wage inflation typically lasts longer in the services sector.
At $1.0649 at the end of the day, the euro was down 0.3 percent against the dollar. So far in February, its value against the US dollar has decreased by nearly 2%. However, this is somewhat unusual. It has gained 1.5% against the Japanese yen, but it has not changed against the pound.
The has gained nearly 2 percent so far in February, putting it on track for possibly its best monthly performance since the 3.2% rally in September. It is currently trading around 104, which is lower than the six-week high of 104.67 set on Friday.
A survey conducted on Tuesday by the ZEW economic research institute found that higher profit expectations in energy- and export-related sectors helped boost investor sentiment in Germany more than anticipated this month.
“It’s going to be difficult for the next few months to assess where we should be at this stage of the cycle,” Deutsche Bank (ETR:) states. “The data momentum has been positive of late.” Jim Reid, a strategist, stated.
“We’re yet to see anything close to the full lag of monetary policy filter through to the U.S. and Europe,” he stated. “There has no doubt been big improvements from gas price falls and loosening of financial conditions.”
Data on U.S. manufacturing will be released later on Tuesday, and the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures index, released on Friday may provide additional insight into how interest rates might change this year.
The dollar rose 0.3% to 134.72 against the yen.
In the meantime, sterling reversed course and gained $1.2098 against the dollar, up 0.5 percent. It rose to 88.05 pence against the euro, its biggest one-day gain since mid-January, following data showing that UK business activity was much healthier than anticipated in early February.
