The euro plunged and has been driven even lower by investors after the eurozone published its weakest inflation data in four years. Following price data, concerns of weak inflation in the eurozone have now turned into deflation fears. Traders are now selling the euro, worried that the European Central Bank may have to launch fresh monetary stimulus, possibly another rate cut, at its meeting. As expected, the US dollar was one of the main beneficiaries from the euro’s worst one-day plunge in months and the greenback is closing in on two-month highs against a basket of currencies which would represent a remarkable turnaround

Manufacturing data will also be on the agenda for the pound with the UK currency up sharply against the euro but down in other crosses and near two-week lows against a rising US dollar.

Sterling

The British pound surged alongside most other currencies against a tumbling euro but opens sharply lower against the US dollar with further declines a possibility. Investors will study the first of Britain’s closely-watched and traded PMI surveys starting with the UK’s manufacturing sector. Estimates point to growth in the industry slowing from a survey level of 56.7 to 56.1 in October.

US dollar

The US dollar jumped to two-week highs against a basket of currencies, levels not far off two-month peaks, as investors continued to respond to the Federal Reserve’s less dovish-than-expected statement as well as shocking eurozone data. Weak inflation concerns turned into deflation fears for the euro area, following the region’s latest price data. While eurozone unemployment held at a record 12.2 per cent in September, US weekly jobless claims improved in the latest period.

Euro

The euro sank across the board and by over one per cent to two-week lows against the US dollar, hurt by lacklustre eurozone data that seemed to open the door wider to looser monetary policy from the European Central Bank ahead of its meeting. In front of data, the euro was looking overvalued on a technical basis on the back of its recent gains while end-of-the-month trading may also have played a part in the currency’s huge fall. Data showed that unemployment in the eurozone held at a record 12.2 per cent in September which was above forecasts of 12 per cent.

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