“There does seems to be a risk dynamic in China where it is impacting the safe-haven and risk currencies,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “We’re moving back toward being a bit more sensitive to the China data. Naturally the euro is not happy with these PMI numbers.”
Currencies of nations that benefit from trade with China also declined. The Australian dollar dropped 0.2 percent to 89.84 U.S. cents, while the won slumped 0.6 percent to close at 1,072.30 per dollar.
The yen has rallied 3.7 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.4 percent, while the euro added 0.1 percent.
“The yen still has a safe-haven appeal,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “The market is particularly sensitive to the flash Chinese PMI, particularly because it’s timely. I would be very reluctant to draw a sweeping conclusion but I accept that the market likes to trade off it, and the market is in the mood to be bearish.”
The Philadelphia Fed Index fell to -6.3, compared with an estimate of 8, according to a Bloomberg survey. Fewer Americans filed applications for unemployment benefits last week, a Labor Department report showed today, while the 336,000 figure exceeded the median estimate of 335,000 in a Bloomberg survey of economists.
Minutes of the Fed’s January policy meeting released yesterday showed several policy makers said in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to trim asset purchases by $10 billion at each meeting.
“Even if we get some weaker U.S. economic data, the Fed will not easily stop tapering and that’s being priced in by the market,” said Noriaki Murao, managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York “The dollar is supported.”
The euro weakened against most of its 16 major counterparts after Markit Economics said its composite index of services and manufacturing in the region dropped to 52.7 in February from 52.9 the previous month. Economists surveyed by Bloomberg forecast an increase to 53.1.
While the euro-area economy is forecast to post full-year growth in 2014 for the first time in three years, the recovery remains at risk because of near-record unemployment and subdued price pressures.