London (Reuters) – On Thursday, the euro fell across the board after weak German and French PMI data showed that the eurozone economy was struggling to get going. This made traders less sure that the European Central Bank would raise interest rates quickly.
The German economy, which is the biggest in Europe, lost a lot of steam at the end of the second quarter. A preliminary survey released on Thursday showed that falling exports, economic uncertainty, and inflation all hurt domestic demand.
The French flash manufacturing PMI number for June fell to 51.0 points from 54.6 points in May. This was a much bigger drop than what was expected, which was a drop to 54.0 points.
Kenneth Broux, an FX strategist at Societe Generale (OTC:SCGLY) in London, said, “The below-forecast PMIs fuel debate about slowing growth and lower yields, and raise the question of how much the ECB can really raise rates.”
After the data came out, the money markets were pricing in rate hikes of about 30 basis points (bps) in July, down from 34 bps on Monday. Traders also cut the amount they thought the ECB would raise rates by the end of 2022 from 176 bps on Monday to 161 bps.
The euro fell against the U.S. dollar by 0.6% to $1.0498, which was the third time this week that it fell below $1.05.
The Norwegian currency was also one of the big winners against the euro after its central bank raised interest rates by 50 basis points (bps) on Thursday. This was the biggest single increase since 2002 and twice as much as most economists expected.
The euro’s losses pulled the U.S. dollar up from its earlier lows and sent the greenback into positive territory against its rivals. This happened after cautious comments by Federal Reserve Chair Jerome Powell on Wednesday lowered sentiment and pushed down Treasury yields.
Powell told Congress that the central bank is fully committed to getting prices under control, even if that means risking a slowdown in the economy.
He said that a recession was “certainly a possibility,” which shows that the financial markets are worried that the Fed’s plan to tighten monetary policy will slow down growth. Later in the day, Powell gives a speech to the House.