LONDON: The euro and sterling slumped against the dollar on Friday after surveys showed the downturn in business activity across the eurozone and Britain deepened this month and the economies were likely entering a recession.
The euro slipped 0.8% to US$0.97510, its lowest level since October 2020, after S&P Global’s flash eurozone Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, fell further in September.
The downturn in German business activity deepened, as higher energy costs hit Europe’s largest economy and companies saw a drop in new business.
Sterling also fell almost 1% against the US dollar to touch a fresh 37-year low of US$1.11520 after PMI figures showed the downturn in Britain’s economy worsened this month as companies battled soaring costs and faltering demand.
The pound was down 0.6% at US$1.1191 at 9am.
George Vessey, currency strategist at Western Union International Bank, said the eurozone data highlighted “ongoing fears about the energy crisis and recession”, pushing the euro to new 20-year lows.
Also weighing on sterling, Britain’s new finance minister announced plans to spend about £60 billion (US$67 billion) on subsidising gas and electricity bills for the next six months for households and businesses.
The Bank of England lifted interest rates by 50 basis points on Thursday to tackle inflation but, like previous rate hikes in recent months, the move failed to support the pound as it was overshadowed by concerns about the economy.
The yen was slightly lower but still set for its first weekly gain in more than a month after Japanese authorities intervened in markets to support the yen for the first time since 1998.
The yen edged down 0.3% to 142.88 per dollar, after a more than 1% rally on Thursday on news that Japan had bought yen to defend the battered currency. Trading was thin on Friday with Japanese markets closed for a public holiday.
The dollar index, which measures the US currency against a basket of currency including euro, sterling and yen, surged 0.75% to 112.060, hitting a fresh May 2002 high. The dollar received a boost this week from a very hawkish Federal Reserve policy announcement and rising Treasury yields.
“Ironically, I do think that the rise in US Treasury yields overnight, particularly the 10-year area, is a direct result of the view that the Bank of Japan is going to have to be selling Treasuries, to supply the dollars in order to intervene,” said Ray Attrill, head of FX strategy at National Australia Bank. “Outside of dollar/yen, it will make the dollar even more attractive against other currencies.”
Flash September purchasing managers’ indexes for the US were due later on Friday and will provide a good overview of the global outlook.