The euro dropped the most in two months against the dollar as services and manufacturing in the region shrank to a three-year low, adding to evidence the central bank will need to do more to spur growth.
The yen and the dollar strengthened against most of their major counterparts as demand for the perceived safety of those nations’ assets increased after separate reports showed China’s manufacturing and Japanese exports declined for a third month. Australia’s dollar and South Africa’s rand led losses among higher-yielding currencies.
“We’re gradually getting back in to the old routine of global growth moderation fears, subpar data and then you have structural concerns for the euro zone come back to the surface,” said Samarjit Shankar, a managing director for the foreign-exchange group at Bank of New York Mellon. “The monetary morphine only lasts so long.”
The euro dropped 0.9 percent to $1.2933 at 9:35 a.m. New York time, after sliding 1.1 percent, the biggest decline since July 20. The shared currency weakened 1.2 percent to 101.08 yen and declined for a fourth day versus the Swiss franc, depreciating 0.1 percent to 1.2086 francs. The yen strengthened 0.3 percent to 78.13 per dollar.
BNY Mellon expects the euro to fall to $1.23 by year-end, Shankar said in a telephone interview from Boston.
A composite index based on a survey of purchasing managers in euro-area services and manufacturing industries dropped to 45.9 for September, the lowest since June 2009, London-based Markit Economics said in an initial estimate. A reading below 50 indicates contraction.
The Dollar Index rose 0.5 percent to 79.54, after the data from China and Japan added to evidence that Asian economies are slowing, spurring demand for the safety of U.S. Treasuries.
Ten-year notes extended their run of gains to the longest in four weeks with the yield declining three basis points, or 0.03 percentage point, to 1.75 percent. In times of economic stress investors seek dollar-denominated assets because it is the world’s reserve currency.
A preliminary reading was 47.8 for a China purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, compared with a final level of 47.6 last month. Japan’s overseas shipments slid 5.8 percent on weakness in demand from Europe and China.
The yen rose against the dollar to the strongest level in a week, even after the Bank of Japan unexpectedly added 10 trillion yen ($127 billion) in stimulus yesterday. The Japanese currency is considered a safe haven because of the nation’s status as a global net-creditor.
The extra yield investors receive for purchasing a U.S. 10- year security versus a similar maturity Japanese bond fell to 94 basis points, the lowest in a week.
The euro weakened against most of its 16 major peers even after Spain’s borrowing costs fell at a 4.8 billion-euro auction of three- and 10-year debt, the biggest since January. The sale came amid expectations the nation will ask the European Central Bank to buy its debt.
“One of the big problems that remains unresolved in the euro area is a lack of growth,” said Lee Hardman, a foreign- exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We still anticipate the euro will continue to weaken and expect a move back to $1.20 over the next six to 12 months.”
The euro has risen 2.8 percent in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 2.5 percent and the yen weakened 0.8 percent. It rallied 1.7 percent since Sept. 6 when the European Central Bank pledged unlimited bond purchases to regain control of interest rates.
Nomura Holdings Inc. increased its euro-dollar forecast to $1.28 from $1.18 for the third quarter of this year, according to a note to clients yesterday. The Tokyo-based bank expects the shared currency to trade at $1.28 at year-end compared to a previous estimate of $1.15.
Australia’s currency fell as the Chinese data clouded the prospects for the South Pacific nation’s resource exports.
“The market was probably expecting a bit more of a bounce” in the Chinese data, said Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney. “The Aussie is a little bit lower. There’s just a little bit of disappointment there.”
The so-called Aussie dropped 0.9 percent to $1.0390. South Africa’s rand declined 1.2 percent to 8.3689 per dollar.