NEW YORK (Reuters) – The euro declined against the U.S. dollar on Monday, following weaker-than-expected reports on eurozone business activity. In contrast, U.S. data reflected stable activity, pushing the dollar higher. This shift comes ahead of key Federal Reserve speeches set for later this week.
The weak economic data from the eurozone reinforced expectations that the European Central Bank (ECB) may implement further interest rate cuts. Markets are currently betting on a roughly 77% likelihood of a 25 basis points (bps) cut at the ECB’s October meeting.
S&P Global’s report showed a sharp contraction in eurozone business activity in September, driven by stagnation in the services sector and a worsening downturn in manufacturing. The slowdown appeared widespread, with Germany’s decline deepening and France returning to contraction following a brief boost in August due to the Olympic Games.
Meanwhile, the U.S. economy showed steady business activity for the month, but prices for goods and services surged at the fastest pace in six months. This could indicate rising inflationary pressures in the months ahead.
These figures follow the Federal Reserve’s recent decision to reduce rates by 50 bps. Several Fed officials commented on Monday that the cut aimed to support a balanced economic outlook. The flash U.S. Composite PMI Output Index, which tracks both manufacturing and services, came in at 54.4 for September, only slightly lower than August’s 54.6 reading, signaling continued expansion.
The dollar index, which measures the dollar’s performance against a basket of major currencies, gained 0.05% to reach 100.83, after rising as high as 101.23 earlier in the session. The euro fell 0.39% to $1.112, marking its largest daily drop since September 9.
Michael Green, chief strategist at Simplify Asset Management, said, “Interest rate expectations are key right now. Most anticipate the Fed to take the lead in cutting rates, and any shift in that outlook could benefit the dollar.”
Despite falling for three consecutive weeks, the dollar has shown strength following the recent rate cut by the Fed. Several high-ranking Fed officials, including Chair Jerome Powell, are expected to speak this week.
Elsewhere, the British pound strengthened 0.2% to $1.3345, its highest level since March 2022, after a survey revealed that U.K. business growth slowed in September, though not as sharply as in the eurozone. The Bank of England kept rates unchanged last week, with the governor emphasizing the need for a cautious approach to rate cuts.
Against the Japanese yen, the dollar fell 0.37% to 143.38 yen after a public holiday in Japan. Last week, the dollar hit a two-week high of 144.50 yen after the Bank of Japan maintained its interest rates and showed little urgency to raise them.
Later this week, policy decisions are expected from the Swiss National Bank and Sweden’s Riksbank, both of which are anticipated to cut rates by 25 bps.
