After failing to break above 1.4825 during the overnight session, the euro consolidated to dip below 1.4700. Indeed, the economic docket for the Euro-Zone fueled bearish sentiment for the euro as manufacturing and services contracted for the fourth consecutive month in September.
Talking Points
• Japanese Yen: Breaks Below 105.50
• Pound: Housing Sector Continues to Falter
• Euro: Manufacturing and Services Slip to Record Lows
• US Dollar: Paulson, Bernanke and Cox to Testify Before Senate Banking Committee
Euro-Zone Manufacturing and Services Hit Record Lows, Euro Dips Below 1.48
After failing to break above 1.4825 during the overnight session, the euro consolidated to dip below 1.4700. Indeed, the economic docket for the Euro-Zone fueled bearish sentiment for the euro as manufacturing and services contracted for the fourth consecutive month in September. The downbeat data has clearly weighed on the growth outlook for the EZ, and conditions may only get worse as Europe’s largest economy is on the brink of a recession.
The Euro-Zone manufacturing PMI plunged to a record low reading of 45.3 from 47.6, while the services PMI slipped to an all time low of 48.2 from 48.5 in August. Meanwhile, manufacturing activity in Germany contracted for the second straight month, falling to a fresh record low of 48.1 from 49.7. Similarly, the service sector contracted for the first time in seven months as the index fell to 49.3 from 51.4. Stagnant growth has fuel recessionary concerns as German economy contracted in the second quarter, and may remain subdued for the rest of the year as foreign and domestic demands falter. Amid mounting growth concerns for the EZ, ECB officials continue to hold a hawkish outlook for inflation as President Trichet stressed that maintaining price stability is the main focus for the central bank. He went on to note that the bank if carefully monitoring secondary inflation, which suggests that the ECB is not looking to lower rates any time soon. Meanwhile, industrial new orders rebounded in July, rising to 1.6% from the record low reading of -7.2% in June.
Meanwhile, the economic docket for the U.K. continued to fuel growth concerns for Europe’s second largest economy, while the Sterling dipped below 1.8500 after reaching an intraday high of 1.8585. Mortgage approvals in Great Britain slipped to a record low of 21.086K in August, which suggests that the housing slump is far from recovery. Falling home values paired with tightening credit conditions has clearly taken a toll on the economy, and may only get worse as the financial sector remains under pressure. Stagnant growth paired with high inflation has left the BoE in a complex situation, and may no longer be able to sit on the sidelines as growth prospects turn bleak.
Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and SEC Chairman Christopher Cox are scheduled to testify before the Senate Banking Committee at 9:30 EST today to discuss the current developments of the financial crisis and the $700B rescue plan. The outcome and commentary following the meeting however, could spark volatility in the market as traders eagerly await for further clues to how regulators will respond to the recent turmoil in the financial sector.
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