Stalling eurozone growth left the region’s currency under pressure on Tuesday as some investors considered the possibility that the European Central Bank may be forced into an about-turn on interest rate policy.
The euro fell 0.4 per cent to $1.4389 versus the dollar and lost 0.3 per cent to £0.8788 against the pound, while losing 0.5 per cent to Y110.49 on the yen.
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Initial GDP estimates for the second quarter showed the eurozone economy expanded by 0.2 per cent, down from 0.8 per cent in the first three months, reducing the annual rate of growth to 1.7 per cent from 2.5 per cent.
Signs that Germany was now no longer able to pick up the slack from the sharp slowdown in the periphery were evident after its GDP slowed to 0.1 per cent in the second-quarter from 1.5 per cent in the first.
“With activity barely expanding throughout the eurozone, at least any lingering urge for the ECB to raise interest rates further should have been well and truly eradicated,” said Jennifer McKeown at Capital Economics.
The dollar was stronger against most other currencies, benefiting from losses in equity markets as it found haven support. Buying in US assets was also boosted by comments from one of China’s top commercial bankers.
Guo Shuqing, chairman of China Construction Bank, said that although holding US Treasuries carried certain risks, “at a time when the global economy is volatile and the eurozone is in deep difficulties, Treasuries remain the best product in terms of safety and returns”.
The dollar climbed 0.2 per cent to $1.6375 against the pound, but remained flat against the yen at Y76.80 as the Japanese currency also found haven appeal. The dollar found the most support against the riskier commodity currencies like the Australian and Canadian dollars. The Aussie fell 0.7 per cent to $1.0439 while the loonie lost 0.6 per cent to $0.9857.
South Africa’s rand fell 2 per cent versus the dollar to R7.1574 after weaker than expected manufacturing growth and retail sales data.
