The euro hit a fresh two-month low after more disappointing economic data highlighted the currency area’s struggle with weak economic growth.
After another contraction in Germany’s manufacturing sector, according to purchasing managers’ data for July, the euro fell to levels it last touched in late May, down 0.2 per cent at $1.1123. It last closed under that level in mid-2017.
The numbers came in the run-up to Thursday’s hotly anticipated monetary policy call at the European Central Bank. It is expected to pave the way for a return to stimulus at the meeting, in an effort to energise the eurozone’s anaemic economy.
There was a rally for German government debt on the prospect of more stimulus, while the uncertain economic outlook also highlighted the relative safety of Bunds, sending yields toward record lows. The 10-year Bund yield touched minus 0.383 per cent, down 2.6 basis points.
Frankfurt’s Xetra Dax 30 touched a fresh two-week high, helped by a recovery for industrial stocks.
London’s FTSE 100 came off a three-day rally, dropping 0.8 per cent. It was hit by falling metals stocks, which tracked lower iron ore prices, with production expected to resume at a major Brazilian mine.
A resurgent sterling also knocked UK stocks. The pound regained 0.4 per cent to trade at $1.2484 as investors watched events in Westminster on Boris Johnson’s first day as prime minister.
Wall Street’s S&P 500 slipped 0.2 per cent after a series of lacklustre earnings and as investors were faced with the prospect of government scrutiny of the technology sector.
The caution also came as investors measured further signs of an economic slowdown against optimism on US-China trade negotiations.
The IMF on Tuesday lowered its forecast for global economic growth by 10 basis points to 3.2 per cent for this year — the weakest rate of expansion for a decade — and 3.5 per cent for 2020. It cited risks from Brexit as well as global trade tensions.
Hopes for improved relations between the US and China came after it emerged that top Washington officials were seeking to reignite trade talks.
Hong Kong’s Hang Seng index added 0.6 per cent and mainland China’s CSI 300 was up 0.8 per cent.