Mon Sep 23 15:17:46 UTC 2024: ## Euro Drops as Economic Data Disappoints, Dollar Gains Strength
**NEW YORK** – The euro weakened against the dollar on Monday, driven by disappointing business activity reports in the Eurozone. The decline was further amplified by robust U.S. data, which showed sustained economic activity despite a recent rate cut by the Federal Reserve.
The Eurozone’s weak data fueled expectations of further interest rate cuts by the European Central Bank, with markets pricing in a high probability of at least a 25 basis point reduction at the October meeting. A survey by S&P Global revealed a sharp contraction in Eurozone business activity, with the dominant services sector stagnating and manufacturing experiencing an acceleration in decline. These contractions were widespread, impacting Germany and France significantly.
In contrast, U.S. business activity remained steady in September, although average prices for goods and services rose at their fastest pace in six months, suggesting a potential acceleration in inflation. Following the Fed’s recent 50 basis point rate cut, officials have stated that the move was intended to maintain a balanced and healthy economy.
The dollar index, measuring its performance against a basket of currencies, gained 0.05% to 100.83, reaching a session high of 101.23. The euro, meanwhile, plummeted 0.39% to $1.112, on track for its largest daily decline since September 9th.
“We’re primarily focusing on interest rate expectations,” explained Michael Green, portfolio manager and chief strategist at Simplify Asset Management. “Most expect the Fed to lead and be more aggressive in cutting rates. Historically, this has been a reasonable interpretation. Anything that repositions the market closer to the Fed’s stance is likely to benefit the US dollar.”
The dollar witnessed a three-week decline following the Fed’s rate cut, but with multiple Fed officials scheduled to speak this week, including Chair Jerome Powell, the currency is poised for potential gains.
Sterling, on the other hand, strengthened 0.2% to $1.3345, its highest level since March 3, 2022, after a survey indicated a slowdown in British business growth this month, although less severe than the Eurozone. The Bank of England maintained its interest rates last Thursday, with its governor emphasizing the need for caution in cutting rates too quickly or aggressively.
Against the Japanese yen, the dollar weakened 0.37% to 143.38 after a holiday in Japan. Last week, the greenback reached a two-week high at 144.50 yen following the Bank of Japan’s decision to leave interest rates unchanged and signal no immediate plans for further hikes. The BOJ’s stance is expected to face challenges in the coming months due to an upcoming ruling party vote to select a new prime minister, with potential candidates holding diverse views on monetary policy.
The Swiss National Bank and the Riksbank are both expected to announce policy decisions later this week, with both central banks anticipated to implement 25 basis point cuts.
First Piper 