The euro rose on Thursday after data suggested that the euro-zone’s economic downturn may be easing, although holidays in the U.S. and Japan kept trading activity muted.
With markets closed in Japan and the U.S. for the Thanksgiving holiday, currencies traded with some volatility as liquidity was thinner than usual.
A flurry of preliminary surveys showed that the recession in economic powerhouse Germany may be shallower than expected, which offset a downbeat reading on French economic activity.
Earlier in the day, the euro rose against most other major currencies following the surveys.
“There was a bit of an upside surprise on Germany and the euro zone, and yes, it’s an improvement on the previous reading, but all this says is that things are getting a bit less bad,” said TraderX strategist Michael Brown, of Thursday’s flash composite Purchasing Managers’ Index (PMI) for November.
The survey showed that the Eurozone economy is on track to contract again in the fourth quarter.
The PMI, which covers the bloc’s dominant services sector, rose to 48.2 this month from 47.8, slightly above the Reuters poll estimate of 48.1 but firmly in contraction territory.
Manufacturing activity, which has contracted every month since July 2022, fell again in November. Its PMI rose to 43.8 from 43.1, beating the poll’s expectation for 43.4, but still below breakeven.
“It’s not exactly cause for much optimism … and basically confirms what we already knew: that the economy faces a tough winter ahead,” Brown said.
The euro was last up 0.18% on the day at $1.09075, having traded as high as $1.0931 earlier in the day.
“Euro/dollar is trading back above $1.09 but could face formidable resistance above $1.096,” Saxo Bank strategists said in a note.
Markets showed a muted reaction to the shock victory of anti-EU far-right populist Geert Wilders in Wednesday’s general election in the Netherlands.
Sterling regained some ground against the dollar after falling 0.3% on Wednesday as British Chancellor of the Exchequer Jeremy Hunt delivered a budget update that forecast much weaker growth than previously forecast and a raft of tax cuts and subsidies for Britain’s struggling economy.
A separate reading of U.K. business activity showed companies reported a slight return to growth in early November after three months of contraction, giving the Pound a small boost.
The Pound was last up 0.3% on the day at $1.2538, having risen to a high of $1.2575 after the PMI data.
The dollar index fell 0.14%, its first decline since Monday, after bouncing off 2-1/2 month lows the previous day after data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week.
Another worrying indicator for the Fed was a University of Michigan survey that showed consumers this month expect higher inflation in both the near and long term.
Markets have scaled back expectations for Fed rate cuts in 2024, with futures now showing a 27% chance that the Fed will cut its target rate at the March 2024 meeting, a probability that rises to 40% by May, according to CME Group’s (NASDAQ:CME) FedWatch tool.
The dollar’s weakness has boosted the yen, along with expectations that the Bank of Japan may move away from its ultra-loose monetary policy next year.
After pulling back from the brink of 152 per dollar early last week, the yen hit a two-month high of 147.155 on Tuesday. It was last trading at 149.59.
In cryptocurrencies, Binance CEO Changpeng Zhao resigned and pleaded guilty to violating U.S. criminal anti-money laundering laws as part of a $4 billion settlement to resolve a years-long investigation into the world’s largest crypto exchange. Bitcoin fell 1% to $37,047 after rising nearly 5% on Wednesday.
