The single currency fell to six-week lows versus the US dollar ahead of the elections after poor eurozone PMI data suggested the area’s economic recession is still expanding.
The euro’s sharp fall and a pullback in equities also reflect worries that results in Rome will leave Italy with a hung Parliament that could disrupt the 17-member zone’s progress on ending the debt crisis.
The US dollar did face a spell of profit-taking however, after weaker-than-expected US economic data suggested Chairman Ben Bernanke will repeat the Federal Reserve’s commitment to open-ended asset purchases in his semi-annual statement.
A weaker euro and surprisingly good UK economic data offered sterling some breathing space from what has been relentless selling pressure over the past few days which had forced the pound to 15-month lows against the euro and Cable to two-and-a-half-year lows.
Sterling
Sterling caught a break from recent selling after poor eurozone economic data and a drop in government borrowing helped ease market concentration on Britain’s economic growth outlook. However, the pound’s position still remains bleak following more comments leading investors to believe the Bank of England is turning excessively dovish despite expecting inflation to remain above its two-per cent target for some time. David Miles, a member of the BoE’s Monetary Policy Committee, said in a speech that he felt the central bank may need to increase quantitative easing by an extra £175 billion in order to shore up economic growth.
US dollar
PMI surveys raised fresh concerns about how far the eurozone’s economic recession will stretch, leading traders into the safe haven US dollar, which moved the US currency on to six-week highs versus the euro and to five-month highs against a currency basket. The greenback had already opened session in bullish mood following Federal Reserve minutes in which US policymakers discussed tightening monetary policy. However, the US dollar did face profit-taking later in the day after investors reacted to weaker-than-expected US economic data.
Euro
The euro is under pressure having fallen to six-week lows against the US dollar as weak economic fundamentals and an upcoming Italian election dampen optimism that the worst is over for the eurozone in terms of economic recession and sovereign debt risks. The single currency was jolted by the eurozone’s latest PMI surveys, which showed services and manufacturing in the region shrank at a faster pace than analysts had predicted.