The European single currency dropped against the dollar yesterday after a key eurozone manufacturing and services index suffered its steepest fall since the beginning of the global economic crisis.
The euro was changing hands at $1.3345 in late trading in London – compared to $1.3408 late in New York on Wednesday. The euro was also down against the Japanese currency, dropping to 112.53 yen from 113.29 previously. The dollar fell to 84.33 yen from 84.47 yen.
The European single currency on Wednesday had jumped up and reached $1.3440 – a five-month high – thanks to some less than encouraging comments about the outlook for the US economy from the Federal Reserve.
But yesterday London-based research group Markit announced that its purchasing managers’ index (PMI), a survey of 4,500 euro area companies, crashed in September to 53.8 points from 56.2 points in August.
Although any score above 50 indicates a trend towards growth, and this marked a 14th successive month in positive territory, concern was evident after the fastest drop since November 2008 – at the start of the financial crisis.
Global Insight analyst Howard Archer said the results showed Europe’s recovery was “starting to falter appreciably (and)... facing serious economic headwinds,” including the recent firming of the euro which crimps exports.
Markit boss Chris Williamson warned that except for France and Germany “double-dip recession fears will be heightened by a renewed contraction of economic activity and accelerating job losses in September”.
The 16-nation euro area was also rocked by the surprise announcement of a sharp contraction in the Irish economy in the second quarter.
Gross domestic product shrank by 1.2 per cent over the quarter, confounding expectations for a modest rise and stoking fears of a new recession.
“Ireland’s disappointing GDP figures... support our view that the economy is a long way from staging a sustained recovery,” said analyst Ben May at the Capital Economics consultancy.
Ireland is now the only European economy – with the exception of debt-riddled Greece – to be in contraction. On the debt markets, the yields on Irish 10-year bonds rose to 6.339 per cent late yesterday compared to 6.191 per cent late on Wednesday. Portugal – another economy wracked by debt fears – also saw the yields on its 10-year bonds rise to 6.198 percent from 6.039 per cent earlier.
Gold dipped to $1,290.75 an ounce, one day after striking a record high of $1,296.30 as the safe-haven metal profited from the possibility of more stimulus measures by the US Federal Reserve, traders said.