Dollar Rebounds as Eurozone Woes Weigh on Euro

The US dollar clawed back from a month-low, spurred by lackluster economic data from the eurozone, which cast a shadow on the euro’s performance.

In a surprising turn of events, the euro stumbled by 0.7% to $1.0594 after earlier gains, following a Reuters survey unveiling a decline in business activity across the eurozone. This unexpected downturn has raised concerns about the region’s economic health and the looming possibility of a recession.

Germany, the largest economy in the European Union, found itself in a particularly grim scenario. Both its service and manufacturing sectors fell into contraction territory, as reported by the purchasing managers’ index survey.

Jane Foley, the head of FX strategy at Rabobank, suggested that the eurozone’s economic weakness compared to the United States is likely to curtail any further declines in the US dollar.

Dollar Gains Across Board

The dollar index, gauging the greenback against major world currencies, rebounded 0.6% to 106.22 after briefly touching its lowest level since September 22, registering 105.36 earlier in the day.

Simultaneously, the dollar strengthened against the Japanese yen, hovering at 149.90 yen, perilously close to the 150-yen mark, a level that often triggers intervention concerns from Japanese authorities.

The US dollar had been facing downward pressure due to a sharp drop in US bond yields on the preceding day. This drop followed a surge, pushing the 10-year Treasury yield above 5% for the first time since July 2007.

On Tuesday, the yield showed signs of resurgence as investors anxiously awaited key economic data. US gross domestic product data is set for release on Thursday, and inflation data is anticipated on Friday. These upcoming reports have the potential to introduce more volatility into both the bond and currency markets.

 

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