By Chuck Mikolajczak
NEW YORK (Reuters) -The euro fell against the dollar on Monday as business activity reports for the euro zone economy disappointed, briefly extending declines after U.S. data showed activity there held steady.
Soft Eurozone data supported expectations for more rate cuts from the European Central Bank this year, with markets currently pricing in a roughly 77% chance of at least a 25 basis points (bps) cut at the central bank’s October meeting .
A survey compiled by S&P Global showed that business activity in the euro zone shrank sharply this month as the bloc’s dominant services sector leveled off while the manufacturing downturn accelerated.
The contraction appeared to be broad-based, with the downturn in Germany deepening, while France returned to contraction after the boost from the Olympic Games in August.
In contrast, US business activity was flat in September, but average prices for goods and services rose at the fastest pace in six months, possibly signaling an acceleration in inflation in the coming months.
S&P Global said the U.S. Composite PMI Output Index, which tracks manufacturing and services sectors, was little changed this month at 54.4, down from a final reading of 54.6 in August, with a reading above 50 indicating expansion.
The , which benchmarks its performance against a basket of currencies including the yen and euro, rose 0.04% to 100.82 after rising as high as 101.23 during the session. The euro fell 0.28% to $1.1131, on track for the biggest daily decline since September 9.
“What we’re primarily looking at is interest rate expectations. Most expect the Fed to take the lead and be relatively more aggressive in terms of rate cuts. Historically, that’s been a reasonable interpretation,” said Michael Green, portfolio manager and chief strategist at Simplify It asset management in New York.
“Anything that would cause the market to move prices closer to Fed levels would likely provide at least some benefit to the U.S. dollar.”
The dollar fell for the third week in a row last week after the Fed cut interest rates by more than 50 basis points.
Several Fed officials spoke Monday, with Minneapolis Federal Reserve President Neel Kashkari calling the cut the “right decision,” while Bank of Chicago President Austan Goolsbee said he expects “many more rate cuts in the coming year.” expected”.
Raphael Bostic, president of the Atlanta Federal Reserve, said the Fed is not in a “mad dash” toward neutral interest rates as policymakers debate how far and fast rates should fall.
Sterling rose 0.17% to $1.3343 after rising to $1.3356, its highest level since March 4, 2022, after a similar survey showed UK companies reporting a slowdown in growth this month, although it was less severe than the figures in the eurozone.
The Bank of England left interest rates unchanged last Thursday, with the governor saying the central bank had to be “careful not to cut too quickly or too much.”
Against the Japanese yen, the dollar weakened 0.1% to 143.76 after a holiday in Japan. The US currency hit a two-week high of 144.50 yen last week after the Bank of Japan (BOJ) left interest rates unchanged and said it was in no hurry to raise them again.
As for the yen, a ruling party vote later this week to elect a new prime minister will make the BOJ’s task challenging in the coming months, with the frontrunners showing divergent views on monetary policy. Early elections are considered likely at the end of October.
Policy announcements are expected later this week from the Swiss National Bank and the Riksbank.
