Dollar Climbs to One-Year High as Europe’s Currencies Crushed
(Bloomberg) -- Europe’s currencies sank as signs of weakening growth cast doubt on the ability of central banks in the region to withdraw from extraordinary stimulus.
The euro fell to a two-month low below $1.14 a day before the European Central Bank meets, and the Swedish krona led losses among Group-of 10 currencies as the Riksbank avoided a hawkish tone. The declines helped push a gauge of the dollar to its strongest level since the summer of 2017.
Euro-area growth slowed to the weakest in more than two years at the start of the fourth quarter as manufacturers suffered from mounting concerns over trade, according to a Purchasing Managers’ Index report on Wednesday. Data misses increase the risk that ECB President Mario Draghi may not be able to keep an upbeat tone on Thursday, as he did during the bank’s last meeting in September.
“Most of it, if not all of it, is down to the very weak euro-area PMI -- and the very weak outlook for the euro-area momentum going forward,” said Andreas Steno Larsen, a global currency strategist at Nordea Bank AB. “Markets are betting that Draghi will have to soften his rhetoric a tad tomorrow as a response to both disappointing inflation and growth indications.”
The European Union’s eastern members tracked declines in the common currency, with the Polish zloty falling 0.9 percent against the dollar and down 0.2 percent versus the euro. The pound fell to a seven-week low below $1.29 as traders grappled with the threat of a no-deal Brexit and the continuing risk of a challenge to U.K. Prime Minister Theresa May’s leadership.
“The euro and pound have been hit hard by the release of the softer euro-zone PMI surveys, which have heightened concerns over slower growth in Europe,” said Lee Hardman, a currency strategist at MUFG Bank Ltd. “The other side of the coin is that makes the dollar appears even more attractive given stronger growth in the U.S. and the hawkish Fed.”
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