🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Dollar slips as upbeat euro zone business activity data lifts euro

Published 01/23/2023, 09:37 PM
Updated 01/24/2023, 03:26 PM
© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar edged lower against the euro on Tuesday after data showed euro zone business activity made a surprise return to modest growth in January, while U.S. business activity shrank for a seventh straight month.

While U.S. business activity shrank in January, the downturn moderated across both the manufacturing and services sectors for the first time since September and business confidence strengthened as the new year began.

"It just looks like another piece of data showing what the Fed has been preaching: the economy is resilient enough to take on more hikes," said Juan Perez, director of trading at Monex USA in Washington.

Fed fund futures see only two more quarter-point rate hikes by the Fed to a peak of around 5% by June, before it starts cutting rates later in the year. The Federal Reserve itself has insisted it still has 75 bps of increases in the pipeline.

"It is clear looking at PMIs that the Fed has prevented expansion, but the economy has not taken a hit like many thought," Perez said.

Still, the dollar, which briefly gained on the euro after the U.S. data, slipped to trade lower on the day, not far from the 9-month lows hit in the previous session.

The euro was 0.09% higher at $1.0881, just shy of the 9-month high of $1.0927 touched on Monday.

The common currency was backed by survey data supporting the view that the euro zone economy was weathering a winter of intense price pressures reasonably well, analysts said.

Surveys showed euro zone business activity made a surprise return to modest growth in January, and service-sector activity in Germany expanded for the first time since June, although price pressures remained sticky.

A stronger economy could potentially allow the European Central Bank to raise interest rates more aggressively as it tackles inflation.

"But if earnings and other items put a negative light on the globe, the euro is more quickly to suffer the consequences than the buck," Monex USA's Perez said.

The dollar rose to a near 1-week high against the yen, before giving up those gains to trade down 0.44% to 130.095 yen.

Last week, the dollar fell to as low as 127.215 yen, its weakest since May, ahead of a Bank of Japan policy review at which investors bet the central bank might signal the end of its stimulus program. The BOJ, however, left policy unchanged, giving the dollar some respite.

Sterling was one of the worst-performing major currencies against the dollar, falling 0.34% on the day to $1.2334, after a survey showed British private-sector economic activity fell at its fastest rate in two years in January.

© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

"Looking forward, we expect sterling to start underperforming neighboring European currencies as economic data highlights widening growth differentials," said Simon Harvey, head of FX Analysis at Monex Europe.

Meanwhile, bitcoin was little changed on the day at $22,973, steadying after having jumped by about a third in value since early January, as investors shook off pessimism after the high-profile collapse of crypto exchange FTX.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.