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Euro drops as economic gloom deepens

London

THE euro fell on Monday after German flash purchasing managers' index survey data for September was weaker than expected, raising more fears about the health of the economy.

The survey showed that German private sector activity shrank for the first time in 61/2 years in September as a manufacturing recession deepened unexpectedly and growth in the service sector lost momentum.

"Manufacturing is even worse than it was during the (2013) sovereign debt crisis," said Michael Hewson, CMC Markets' analyst. "It suggests that Germany is not going to grow at all in the second half of the year." Business growth across the region has also stalled this month, missing forecasts, another PMI survey showed.

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Increasing talk of fiscal stimulus in the eurozone raised bond yields in the region last week, but many analysts say it is not enough to boost the single currency in the context of concerns about global trade and slowdown fears.

Mr Hewson added that the weakening euro suggested investors did not think Germany - the eurozone's biggest economy - was moving towards a significant fiscal package. The European Central Bank has urged governments to focus on fiscal policy because the room for more monetary easing is limited.

The single currency, trading around US$1.10 before the numbers were released, dropped 0.5 per cent to as low as US$1.0966, its weakest since Sept 12. The euro also slid versus the Swiss franc, losing 0.5 per cent to as low as 1.0857 francs.

"The ECB is being ignored for now and hence prospects of any near-term shift in policy do not look particularly realistic," MUFG analysts said. "We see little upside scope for EUR/USD here." The dollar was boosted by the euro's decline, and its index - which measures the greenback against a basket of currencies - was last up 0.2 per cent at 98.748.

The dollar has held up well in recent months as investors are attracted to its relatively high yield and the strength of the US economy.

Both China and the US published positive statements after the latest talks, with the US Trade Representative's office describing the talks as "productive" and China's Commerce Ministry calling them "constructive". October's talks remain on track.

Sterling slipped 0.2 per cent to US$1.2442 as British Prime Minister Boris Johnson cautioned that there would be no Brexit breakthrough at talks with European leaders in New York. REUTERS