Euro and Sterling drop to fresh lows vs Dollar

23 Sep 2022

Both the Euro and Pound fell against the Dollar on Friday, after survey results showed a downturn in business activity in the UK and eurozone worsened in September.

The single currency dipped 0.8% to $0.97510, the lowest since October 2020, as S&P Global's flash eurozone Composite Purchasing Managers' Index (PMI) fell further this month.

Business activity in Germany registered a deeper downturn in September as elevated energy costs hit the economy and businesses registered a decline in new business.

The Pound also fell close to 1% against the Dollar to hit a new 37-year low of $1.11520 after PMI figures revealed the UK economic downturn deteriorated this month as firms were faced with soaring costs and wavering demand.

By 09:00 GMT, Sterling declined 0.6% to $1.1191, Reuters news agency reports.

According to Western Union International Bank currency strategist, George Vessey, the eurozone data reinforced “ongoing fears about the energy crisis and recession,” driving the Euro to new two-decade lows.

Furthermore, also impacting the Pound is the announcement from the UK’s new finance minister Kwasi Kwarteng on plans to spend around £60 billion on subsidising gas and electricity bills for households and businesses for six months.

The Bank of England hiked interest rates by 50 basis points on Thursday in a bid to curb red-hot inflation. However, much like previous rate increases over the past few months, the move didn’t provide support for the Pound as it was eclipsed by economic woes.

Moreover, the Dollar index, measuring the greenback against a basket of rivals, rose 0.75% to 112.060, a new May 2002 high, the Reuters report adds. The Dollar was bolstered this week from the hawkish Federal Reserve policy announcement and increasing Treasury yields.

"Ironically, I do think that the rise in U.S. Treasury yields overnight, particularly the 10-year area, is a direct result of the view that the Bank of Japan is going to have to be selling Treasuries, to supply the Dollars in order to intervene," according to Ray Attrill, head of FX strategy at National Australia Bank. "Outside of Dollar/Yen, it will make the Dollar even more attractive against other currencies."