Economic Downturn Deepens Troubles of Euro

The euro (EURUSD) reached a 6-month low as investors bet on the end of the rate hike cycle amid gloomy economic prospects. The euro fell 0.2% against the U.S. dollar to $1,064 after the publication of PMI data. Among other troubles, Eurozone enterprises suffered the largest drop in new orders in almost 3 years, as price pressures decreased, and job hiring remained weak, which increased fears of an economic downturn in the bloc.

The HCOB Consolidated Purchasing Managers Index, a key indicator of company activity in 20 eurozone countries, rose to a two-month high of 47.1 in September from 46.7 last month after similar decline in the services sector. The index remained well below the 50 mark, reflecting a sharp decline in new orders, especially in the manufacturing sectors. According to the S&P Global/Cips Purchasing Managers Index, there was an even sharper drop in business activity in the UK: the index fell to 46.8 in September compared to 48.6 in August, becoming the lowest in 32 months.

The PMI value exceeded a slight decrease to 46.5, expected by economists in a recent Reuters survey. Many of them said that the study still shows that economic activity is weakening after production has barely increased over the past 9 months.

Investors are confident that the gloomy economic prospects increase the likelihood that the recent European Central Bank's quarter-point rate increase last will be the last in the foreseeable future. A further increase in the ECB key interest rate is becoming increasingly unlikely. The PMI study showed that the decline in the eurozone services sector weakened slightly in September, at the same time it found evidence of a further decline in manufacturing production, which has been constantly declining since mid-2022.