Germany's Ifo business climate index, based on a monthly survey of
some 7,000 companies, fell to 106.3 from 108, undershooting the
Reuters consensus forecast of 107, as a conflict between Russia and
Ukraine took its toll on Europe's biggest economy.
The data added to expectations that the ECB may have to ease policy
sooner rather than later and drove down yields on most euro zone
government bonds to record lows.
The euro skidded to $1.3184 after the IFO survey was released, its
lowest since September 2013. It was last trading at $1.3198, down
about 0.3 percent on the day, amid lower than usual volumes due to a
holiday in London.
The euro's woes lifted the dollar index 0.2 percent to 82.488,
heading towards its Sept. 5 peak of 82.671. A break above that would
take it to levels not seen since July 2013.
In stronger language than he has used in the past, ECB President
Mario Draghi said on Friday the central bank was prepared to respond
with all its "available" tools should inflation drop further.
The ECB holds its next policy review on Sept 4.
"The FX market has interpreted Draghi's statement as meaning that
broad-based asset purchases, or quantitative easing, has now become
more likely," said Lutz Karpowitz, currency strategist at
"Euro has already slipped below the $1.32 level."
Investors will scan euro zone inflation data due on Friday. Analysts
polled by Reuters expect annual inflation to have slowed to 0.3
percent in August from 0.4 percent in July. That is well below the
ECB's danger zone of 1.0 percent and its target of just under 2.0
Citi said it was recommending investors to sell the euro with a
target of $1.3075.
"As Sept 4 approaches, we expect the market to turn greater
attention onto the euro and ECB," Citi analysts said in a note.
"Dovish comments on inflation from Draghi should only further centre
market focus on the euro. From a macro and event risk perspective,
the fundamentals surrounding European growth and inflation have
continued to deteriorate."
[to top of second column]
In contrast to ECB's Draghi, Federal Reserve Chair Janet Yellen on
Friday gave a nod to the concerns of some Fed officials about the
sustained level of monetary policy stimulus, even as she stressed
the need to move cautiously on raising rates.
As a result, Fed funds futures fell back as the market priced in the
risk of an earlier move on rates. Yields on two-year Treasury paper
climbed over 8 basis points for the week, the largest such rise
since June last year.
That helped the dollar outperform, rising to a seven-month high
against the yen at 104.49 <JPY=> on Monday morning before pulling
back to stand at 104 yen, still up slightly.
Even before its latest jump, the dollar had increasingly attracted
bulls. Speculators boosted bullish bets on the greenback in the
latest week to their highest in more than two years, according to
data from the Commodity Futures Trading Commission released on
U.S. flash PMI for August along with new home sales data for July
are due later in the day. Housing data has been improving of late,
having been a concern for the Fed for most of last year and a
better-than-expected reading is likely to help the dollar.
(Editing by Toby Chopra)
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