The euro dropped after data showed manufacturing growth in the Eurozone slowed further in September. The data come after Tuesday’s preliminary inflation slowed in September to just 0.3%. Weak data intensify pressure on the European Central Bank to take more easing measures.
The ECB holds its policy meeting on Thursday. While the consensus view is for no fresh action tomorrow, the euro is expected to remain under pressure after today’s weak data.
A survey compiled by Markit in September showed the Eurozone’s final manufacturing PMI came in at 50.3, the lowest since July last year and below both August’s 50.7 and an earlier flash estimate of 50.5. It is however above the key 50 level that demarcates expansion from contraction and has remained above this level for the 15th straight month.
Adding to the negative sentiment on the euro was German manufacturing PMI data which disappointed markets as the index fell into contraction territory for the first time in 15 months in September, reaching the lowest level since June 2013. Germany is seen to be Europe’s engine of growth so the data are closely watched.
The manufacturing sector in Germany accounts for about a fifth of the economy and the index dropped to 49.9 from 51.4 the previous month and was also lower than the flash reading of 50.3.
Much of the reason behind the weak reading was a weakening economic environment, Russian sanctions and subdued growth in key export destinations.
Low demand for goods and services overall in the stagnating Eurozone economy has been of major concern for the European Central Bank as it struggles to fight of the risk of deflation in the Euro area.
On Tuesday, data showed Eurozone core CPI unexpectedly fell to a 5-year low of 0.8%, suggesting that deflationary pressures are affecting demand and this would likely increase the pressure on the ECB to look at undertaking further stimulus measures in the coming months.
The euro dropped below the key 1.2600 level to 1.2584 after the PMI data before bouncing back.