Euro, Sterling Weak Due to Harsh Business Data, UK Mini-Budget

Euro, Sterling Weak Due to Harsh Business Data, UK Mini-Budget

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  • The euro hit a 20-year low against the dollar
  • The British pound fell to its lowest level in 37 years
  • The dollar index is at its highest level in 20 years
  • USD/JPY rose today, but markets remain cautious

LONDON/NEW YORK (Reuters) – The euro and the pound sank to 20- and 37-year lows against a stronger US dollar on Friday after polls showed an acceleration in the decline in business activity in the euro zone and Britain this month. Economies are likely to enter a recession.

Also weighing on sterling, new UK finance minister Kwasi Quarting announced tax cuts and support measures for households and businesses and the UK Debt Office laid out plans for an additional £72 billion ($79.74 billion) in issuance for this fiscal year to fund the stimulus. Read more

The pound was set for its biggest weekly decline against the US dollar in two years after touching a 37-year low of $1.1022. The pound last fell 1.9 percent to $1.1049.

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UK bond yields are set for the biggest daily rises in decades. Read more

“The UK budget proposals do not reflect the need and reality of the UK economy, an economy that will likely require companies to pay more for higher revenue to reach the government,” said Juan Perez, director of commerce at Monex USA in Washington. .

He added that “a lot of UK growth could come from more debt at a time when recession pressures are deep and the market reacts quickly.”

Earlier in the morning, UK PMI figures showed that the slowdown in the British economy worsened this month as companies battled rising costs and faltering demand. Read more

In line with the pound, the euro fell 0.9% to $0.9755, after earlier hitting its lowest level since October 2002 at $0.9726.

The drop was partly caused by data showing that S&P Global’s Eurozone Composite PMI, seen as a good measure of overall economic health, fell further in September. Read more

The slowdown in German business activity deepened, as rising energy costs hit Europe’s largest economy and companies saw a drop in new business. Read more

The common European currency was on track for its biggest weekly percentage decline since March.

Central Bank Policies

The yen was down 0.5% at 143.14 per US dollar, but is likely to post its first weekly gain in more than a month after Japanese authorities intervened in the markets on Thursday to prop up the currency for the first time since 1998.

The yen rose more than 1% on Thursday after news of Japan buying the yen to defend the volatile currency. Trading was thin on Friday with Japanese markets closed for a public holiday. Read more

The dollar index, which measures the US currency against a basket of currencies that includes the euro, sterling and the yen, jumped to 112.44, its highest level since May 2002 and topping its two-decade high recorded earlier this week. It last rose 1% to 112.38 and is set for its best week since March 2020.

“Money is really a safe haven unlike at any other time in recent decades because the war and its effects do not affect the domestic goals of the United States,” said Monex’s Perez.

The Bank of England raised interest rates by 50 basis points on Thursday in an attempt to tackle inflation, but like previous rate increases in recent months, the move failed to support the pound as it was overshadowed by concerns about the economy.

The dollar received a boost this week from an extremely hawkish Federal Reserve policy announcement and higher Treasury yields.

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Coin quote prices 10:10 am (1410 GMT)

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reporting on Joyce Alves in London and Gertrude Chavez-Dreyfus in New York; Additional reporting by Ray Wei. Editing by Susan Fenton and Jonathan Otis

Our criteria: Thomson Reuters Trust Principles.

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