EUR: Euro falls to two-year low

The euro fell to a two-year low and sterling also tumbled after data on Friday showed major declines in business activity in both markets, while bitcoin hit a record high just shy of $100,000.

The common currency dipped more than 1% at one point to its lowest level since November 2022, and was last down 0.6% on the day at $1.0413 after the data, which showed the bloc’s dominant services industry contracted and manufacturing had sunk deeper into recession.

Markets also raised their expectations of European Central Bank rate cuts, and see a more than 50% chance of a larger-than-usual 50 basis points reduction in borrowing costs in December. The ECB’s deposit rate is currently 3.25%.

“Today’s numbers were weak enough to shift the risks further to the downside,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.

“The monetary policy reaction should be straightforward – the ECB needs to ease faster to neutral as a first step,” he said. “Then of course, a lot will depend on U.S. policies and tariffs, but under the assumption of a modest additional shock to trade and sentiment, we believe that the ECB will need to cut rates below 2% in 2025.”

The euro also fell against the Swiss franc and was last down 0.27% at 0.9264 francs. It weakened against sterling but then pared declines after soft British PMI data hurt the British currency.

Versus the dollar, the pound was last down 0.62% at $1.2509 after British retail sales fell by much more than expected in October, and PMI data showed British business output had shrunk for the first time in more than a year.

Further signs of slowing economic growth could cause the Bank of England to soften its monetary stance.

STRONG DOLLAR

The latest domestic data add to problems for European currencies that have been weakening against the dollar since Donald Trump’s victory in the U.S. presidential election on Nov. 5.

The index that tracks the dollar against six main peers was up 0.5% at 107.6, its highest since November 2022.

The index has appreciated sharply this month on expectations that President-elect Trump’s policies could reignite inflation and limit the Fed’s ability to cut rates, keeping other currencies under pressure.

Trump floated the idea of appointing Kevin Warsh as Treasury Secretary on the understanding that he could later be Federal Reserve chairman, the Wall Street Journal reported on Thursday, citing people familiar with the matter.

The Japanese yen was at 154.4 per dollar, flat on the day. The yen slid back below 156 per dollar last week for the first time since July, sparking the possibility that Japanese authorities may again take steps to shore it up.

EURO RATE FALL EXPLAINED

The yen received a short-lived boost from BOJ Governor Kazuo Ueda, who said on Thursday that the bank would “seriously” take into account the impact that yen moves could have on the economic and price outlook.

Japan’s annual core inflation was 2.3% in October, keeping pressure on the central bank to raise its still-low interest rates.

Just over half of economists in a Reuters poll believed the BOJ would hike in December, in part because of concerns about the depreciating yen.

Eyes were also on bitcoin, which was at a record high, a whisker off $100,000.