Euro Falls as US Dollar Steadies Amid Contrasting Business Activity Reports

The euro depreciated against the dollar following disappointing business activity reports from the euro zone, highlighting deeper contractions across key economies. Conversely, U.S. business activity remained stable, but rising prices signal potential inflation. The outlook includes further rate cuts by European and American central banks amid fluctuating currency performances.

The euro depreciated against the dollar on Monday after lackluster business activity reports from the euro zone economy, briefly extending declines following stable U.S. data, and in anticipation of numerous Federal Reserve statements scheduled this week. The soft euro zone data boosted expectations for additional interest rate cuts by the European Central Bank this year, with markets currently pricing in a 77% chance of at least a 25 bps cut at the ECB's October meeting.

An S&P Global survey revealed a sharp contraction in euro zone business activity this month, with a significant downturn in the bloc's services industry and manufacturing sectors. Germany faced deeper declines, while France returned to contraction following a temporary August boost from the Olympic Games.

In contrast, U.S. business activity remained steady in September, although average prices for goods and services rose at the fastest pace in six months, indicating potential inflation acceleration. The data followed an outsized 50 basis point rate cut by the Federal Reserve last week, aimed at maintaining a balanced economy. The dollar index, which measures the greenback against a basket of currencies, gained 0.05%, rising to 100.83 after touching a session high of 101.23. The euro dropped 0.39% to $1.112, marking its largest daily decline since September 9.

"We are focusing largely on interest rate expectations, with most anticipating the Fed to lead in aggressive rate cuts," said Michael Green, portfolio manager at Simplify Asset Management. Analysts expect the Fed's strategy to benefit the U.S. dollar if the market aligns more closely with Fed policies. The dollar's trajectory will also depend on multiple Fed officials' addresses this week, including Chair Jerome Powell.

(With inputs from agencies.)