Euro Plummets Amid Economic Woes and ECB Rate Cut Speculations

The euro fell significantly against the dollar due to poor euro zone economic data, fueling expectations of further policy easing by the ECB. The downturn in business activity was widespread, notably affecting Germany and France. Traders now anticipate more ECB rate cuts, contrasting with the U.S. Fed's current focus on growth.

The euro sharply declined against the dollar on Monday, as dire business activity readings highlighted the euro zone's economic struggles, sparking expectations of further European Central Bank (ECB) policy easing this year. The common currency dropped 0.6% to $1.1096, marking its most significant daily drop in over three months, moving away from late August's 13-month high influenced by speculations of U.S. monetary policy easing.

S&P Global’s survey revealed a steep and unforeseen contraction in euro zone business activity due to a flatlining services sector and an accelerating downturn in manufacturing. The decline was notably broad-based, with an intensified slump in Germany and a return to contraction for France after August’s temporary boost from the Olympic Games.

Kenneth Broux, head of corporate research, FX and rates at Societe Generale, commented, “The data certainly keeps the door open to a rate cut in October - whether they step through that door, it's too early to say but it's a pretty grim reading.” With the Fed transitioning its focus from inflation to growth, Broux suggested that the ECB might soon follow suit. Presently, traders predict cuts of about 42 basis points this year from the ECB, compared to 38 basis points last week, indicating a stronger likelihood of another rate cut in October.

(With inputs from agencies.)