Euro Falls Amid Grim Euro Zone Business Activity Data

The euro declined against the dollar due to disappointing euro zone business activity reports, raising expectations of further European Central Bank rate cuts. While other major currencies showed mixed movements, the business activity surveys indicated a broader economic downturn, particularly in Germany and France.

The euro suffered a decline against the dollar on Monday, triggered by dismal readings of business activity across the euro zone that may prompt further interest rate cuts from the European Central Bank (ECB) this year. The common currency dipped 0.4% to $1.1122, recovering from an earlier 0.7% loss but still falling from late August's 13-month high, which had been driven by expectations of faster U.S. monetary policy easing.

According to a survey by S&P Global, euro zone business activity shrank unexpectedly this month as the bloc's dominant services sector stagnated and the manufacturing downturn deepened. The slump was widespread, notably with Germany's decline accelerating and France slipping back into contraction post-August's Olympic Games boost.

This economic gloom has raised the likelihood of an ECB rate cut in October, as indicated by Kenneth Broux, head of corporate research at Societe Generale. Broux noted that while the Federal Reserve has already shifted its focus from inflation to growth, a similar transition might soon be necessary for the ECB. Market traders are now forecasting rate cuts around 44 basis points from the ECB this year, compared to 38 basis points last week.

(With inputs from agencies.)