Euro, sterling plunge on soft business activity data, UK budget woes By Reuters

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The euro and sterling fell to fresh 20-year and 37-year lows against a rising U.S. dollar on Friday after surveys showed business activity across the eurozone and Britain accelerated this month and economies likely was entering a recession.

Also weighing on sterling, Britain’s new finance minister Kwasi Kwarteng announced tax cuts and household and business support measures and the UK debt office laid out plans for 72 billion pounds ($79.74 billion) of additional issuance for this financial year to fund the stimulus

Sterling posted its biggest weekly decline against the US dollar in two years after touching a fresh 37-year low of $1.0840. The pound was the day’s biggest loser against the dollar, down 3.4% at $1.0874, and also had its biggest daily percentage loss in two years.

British bond yields also rose on Wednesday as prices fell. Benchmark UK 10-year yield soared to 3.829%, a level not seen since April 2011.

“The market is giving very strong signals that it is no longer willing to finance the UK’s external deficit position given the current configuration of UK real yields and the exchange rate,” wrote George Saravelos, global head of FX research at Deutsche Bank (ETR:) in a research note.

“The policy response required to what is happening is clear: a big, intermeeting rate cut by the Bank of England as soon as next week to regain credibility with the market. And, a strong signal that it is prepared to do ‘whatever it takes to bring down inflation quickly and real yield into positive territory,” he added.

Earlier in the session, UK PMI figures showed the downturn in the UK economy worsened this month as companies battled rising costs and faltering demand.

Moving in line with the pound, the euro fell 1.5% to $0.9689, after earlier hitting its lowest level since October 2002 of $0.9669.

The fall was triggered in part by data showing the flash eurozone S&P Global (NYSE: ) Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, declined further in September.

The decline in German business activity deepened as higher energy costs hit Europe’s largest economy and companies saw a drop in new business.

Europe’s single currency had its worst weekly performance since March 2020.

CENTRAL BANK POLICIES

The yen was 0.6% lower at 143.30 per US dollar, but had its first weekly gain of 0.3% in more than a month after Japanese authorities intervened in markets on Thursday to support the currency for the first time since 1998.

The yen rallied more than 1% Thursday on news that Japan was buying yen to defend the battered currency. Trading was thin on Friday with Japanese markets closed for a public holiday.

The , which measures the US currency against a basket of currencies including the euro, sterling and yen, rose to 113.23, its highest since May 2002 and above two-year highs hit earlier this week. It was last up 1.6% at 112.96, posting its best weekly percentage gain since March 2020.

“The dollar is indeed a safe haven unlike any other time in recent decades because the war and its effects do not affect US domestic goals,” said Juan Perez, director of trading at Monex USA in Washington.

The Bank of England raised interest rates by 50 basis points on Thursday in an attempt to tackle inflation but, like previous rate hikes in recent months, the move did not support the pound as it was overshadowed by concerns about the economy.

The dollar got a boost this week from a very dovish policy announcement from the Federal Reserve and rising Treasury yields.

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Valuable iron prices at 16:01 (2001 GMT)

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 112.9400 111.2200 +1.56% 18.060% +113.2300 +111.0700

Euro/Dollar $0.9695 $0.9834 -1.41% -14.72% +$0.9851 +$0.9669

Dollar/Yen 143.3100 142.4000 +0.65% +24.50% +143.4500 +141.7700

Euro/Yen 138.93 140.00 -0.76% +6.61% +140.2500 +138.6800

Dollar/Swiss 0.9820 0.9769 +0.52% +7.66% +0.9839 +0.9757

Sterling/Dollar $1.0869 $1.1259 -3.46% -19.62% +$1.1273 +$1.0840

Dollar/Canadian 1.3590 1.3488 +0.77% +7.50% +1.3612 +1.3470

Australian/Dollar $0.6534 $0.6642 -1.63% -10.12% +$0.6656 +$0.6512

Euro/Swiss 0.9520 0.9608 -0.92% -8.19% +0.9622 +0.9499

Euro/Sterling 0.8916 0.8734 +2.08% +6.14% +0.8934 +0.8712

NZ$0.5751 $0.5846 -1.63% -15.98% +$0.5856 +$0.5732

Dollar/Dollar

Dollar/Norway 10.5920 10.3915 +2.21% +20.56% +10.6520 +10.4155

Euro/Norway 10.2669 10.2331 +0.33% +2.59% +10.3117 +10.2080

Dollar/Sweden 11.2817 11.0650 +0.59% +25.10% +11.3275 +11.0552

Euro/Sweden 10.9402 10.8763 +0.59% +6.88% +10.9598 +10.8896