The Euro fell to a new two-decade low on Tuesday, dealing a fresh blow to market players amid concerns over what's happening in the energy sector. This is expected to increase inflation and drag European countries into recession.
Meanwhile, China's yuan weakened to a two-year low and sterling hit its weakest level since March 2020. Business activity data from Europe was reportedly not as bad as feared, pushing the euro off 20-year lows earlier in the session, at $0.99005 trading against the US dollars.
However, eurozone business activity contracted for a second month in a row in August and gloomy expectations sent the euro further down. At the time of writing the Euro has started to rise with a gain of 0.77% to trade at 1.0012 following the weakness of the US dollar due to weak PMI data.
However, the market still pays attention to the rise in gas prices, which has been the driver of the Euro's decline at the beginning of the trading session.
British and Dutch wholesale gas prices rose sharply on Monday on the prospect of maintenance on Russia's main pipeline to Europe. Russia will halt natural gas supplies to Europe via the Nord Stream 1 pipeline for three days at the end of the month, the latest indication of the uncertainty over Europe's energy supply.
On the other hand, the US Dollar Index traded down 0.71% to a trading level of 108,183. U.S. private sector business activity. contracted for a second consecutive month in August to the weakest level in 18 months with the services sector weakening as demand weakened in the face of inflation and tighter financial conditions.
The S&P Global flash composite purchasing managers' index (PMI) for August fell to 45 this month – the lowest since February 2021, from a final reading of 47.7 in July. A reading below 50 indicates a contraction in activity. The fall was more pronounced in services, where the sector's PMI fell to 44.1 from 47.3 last month, compared to factory activity.
Both were the lowest since mid-2020 and were also below the median estimate in a Reuters poll of economists, with the service reading well below the consensus forecast of 49.2.
At the same time, the market remains bullish on the US dollar at this point following the hawkish message from the Jackson Hole Fed symposium. Therefore, analysts expect Fed Chairman Jerome Powell to be hawkish.
