The euro on Friday tumbled more than 0.5 percent below the US$1.13 level as a big miss in German manufacturing survey data and falling bond yields prompted traders to cut their positions.
The sharp drop in the single currency, its biggest fall in two weeks, rippled over to other currencies and yanked the US dollar higher, which had struggled throughout the Asian session.
For the week, the common cu rrency lost 0.3 percent against the greenback.
While policymakers had cut growth forecasts for the eurozone earlier this month and launched a new round of cheap loans to its banks, the below-than-expected data raised concerns that the German economy, Europe’s powerhouse, might be slowing quickly.
IHS Markit’s flash composite Purchasing Managers’ Index (PMI) measuring activity in German services and manufacturing, which together account for more than two-thirds of the economy, fell to 51.5, it lowest reading since June 2013.
“The data was bad and the falling bond yields is also weighing on the euro,” said Manuel Oliveri, a currency strategist at Credit Agricole SA in London.
The single currency on Friday fell 0.7 percent to a 10-day low at US$1.1288. Against the yen, it fell nearly 1 percent.
Germany’s 10-year government bond yield was poised to turn negative for the first time since October 2016 and was last trading at zero percent after falling 3 basis points overnight.
The drop in the euro pulled the US dollar higher against a broad basket of its rivals where the euro forms the dominant component. The US dollar index rose 0.64 percent to 96.55, little changed from last week’s 96.59.
In Taipei, the New Taiwan dollar rose against the greenback, gaining NT$0.010 to close at NT$30.806, up 0.3 percent for the week.
Sterling on Friday bounced after suffering its biggest daily drop overnight so far this year in the London trading session after British Prime Minister Theresa May bought a bit more time to resolve when and how Britain exits from the EU.
The pound ended the day at US$1.3208, down 0.8 percent for the week.
One-month risk reversals on the pound versus the euro plunged to its lowest levels since the middle of 2017.
Against the US dollar, bearish bets grew to their highest levels since September 2017, Refinitiv data showed.
EU leaders on Thursday gave May two weeks’ reprieve, until April 12, before Britain could crash out of the bloc if lawmakers next week reject her Brexit plan for a third time.
Broader cash markets painted a broader picture of calm, despite the underlying nervousness building up in the derivative markets.
“That means the FX market clearly now sees a higher likelihood of sterling collapsing, even if the spot rate is not yet reflecting an increased no-deal risk,” Commerzbank strategists said.
Additional reporting by CNA
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