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The euro fell on Monday after data pointed to a slowdown in the eurozone economy, ahead of several key central bank policy decisions later in the week.
The single market currency fell 0.2% against the dollar to $1.11 after the region’s Flash Composite Purchasing Managers’ Index, a measure of manufacturing and services activity in the region, fell to an eight-month low of 48.9 in July from 49.9 in June.
The reading marked the second month in a row the index fell below the 50 mark, indicating that the majority of businesses reported a contraction in activity as high borrowing costs weighed on the economy.
A 0.25 percentage point hike in the European Central Bank’s benchmark rate to 3.75% is seen as almost certain when policymakers meet on Thursday, with further upward movement likely in the coming months.
Europe’s regional Stoxx 600 fell 0.1%, led by the consumer cyclical sector, while France’s Cac 40 fell 0.4% and London’s FTSE fell 0.1%.
Investors turned cautious after China’s Politburo, the country’s top decision-making body, failed to announce a full-scale economic stimulus package in a much-anticipated meeting on Monday.
The world’s second-largest economy has so far struggled to recover from three years of tough Covid-19 restrictions, suppressing global demand and prompting calls for additional government support measures.
“Today’s PMI data was already a big disappointment for the European economy, suggesting that the current ‘slowcession’ will not end anytime soon,” said Carsten Brzeski, global head of macro at ING.
“With (China’s) disappointing recovery, a potential growth engine for Europe is collapsing,” he added.
Meanwhile, Spain’s Ibex 35 index fell 0.7% after the country’s inconclusive election result on Sunday, with right and left alike not guarantee a clear path to form a government.
China’s benchmark CSI 300 fell 0.4% while Hong Kong’s Hang Seng lost 2.1%.
Across the Atlantic, the US Federal Reserve is expected to raise its key rate by 0.25 percentage points on Wednesday, compared to the current target range of between 5% and 5.25%.
Investors and economists are nonetheless divided on whether the rise will mark the end of the U.S. central bank’s 16-month monetary policy tightening campaign after inflation data from earlier this month showed consumer prices rose at the slowest pace since 2021.
Contracts that track Wall Street’s benchmark S&P 500 rose 0.2%, while those that track the tech-focused Nasdaq 100 added 0.3% ahead of the New York open.
Shares on Wall Street sold off late last week after a series of disappointing earnings reports sparked a decline in the high-flying tech sector.
Investors will pay particular attention to industry heavyweights Microsoft and Alphabet, which are due to report earnings on Tuesday, followed by Meta on Wednesday.
