Euro drops against USD after bleak investor survey

London

THE euro weakened on Tuesday, close to the three-year low it touched on Monday, after a German survey showed a slump in investor confidence, adding to pessimism about the outlook for Europe's largest economy.

The euro has lost 3.4 per cent of its value against the US dollar so far this year, as weak manufacturing and GDP data from Germany suggest the euro zone is more vulnerable than previously thought, even as the US economy has proved more resilient than the rest of the world.

The euro traded down 0.1 per cent at US$1.0830, close to its lowest since April 2017. The mood among German investors deteriorated far more than expected in February, on worries that the Covid-19 outbreak that started in China would dampen world trade, the ZEW research institute said in its monthly survey showing economic sentiment among investors.

Petr Krpata, chief currency strategist at ING, said: "Breaking the EUR/USD 1.0800 level seems to be a question of 'when' rather than 'if'." The mix of soft euro zone data, the market pricing renewed European Central Bank deposit rate cuts and attractive euro funding characteristics do not bode well for the euro, he said.

Poor economic data in the euro area has raised concerns that euro zone monetary policy will have to remain looser for longer.

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Minutes from the year's first meeting of the Reserve Bank of Australia (RBA) similarly fuelled expectations of lower interest rates. It left rates at a record low of 0.75 per cent at the meeting, but the minutes showed it was prepared to ease policy further if needed.

The Australian dollar fell 0.5 per cent to 0.6674 against the US dollar, an eight-day low. The Aussie has also been buffeted by the novel coronavirus because of Australia's extensive trade ties with China.

Marc-André Fongern, head of FX research at Fongern Global Forex, said: "If it weren't for the virus, the incredibly cheap Aussie dollar would be definitely worth buying. However, investors should exercise patience as the Australian economy looks set to face further downward pressure."

China's yuan, the currency most vulnerable to the spread of the virus, fell 0.3 per cent to an eight-day low of 7.0110 against the dollar in the offshore market. China is racing to contain job losses as the virus batters its economy.

The British pound remained under pressure as Britain and the European Union laid out conflicting views on trade negotiations. REUTERS