Euro plunges to its lowest for two years
- Purchasing managers' index at 48.1 in November, down from 50 in September
The euro sank to a two-year low against the dollar yesterday as political turmoil in Germany and France dragged the single currency zone's economy into reverse.
A closely-watched monthly survey of business activity fell unexpectedly to 48.1 in November, down from 50 in September – on an index where the 50 mark separates growth from contraction.
The purchasing managers' index (PMI) data sent the euro plunging to just above $1.03 versus the US currency, its lowest since November 2022.
Yields on eurozone government bonds also fell as investors bet on faster interest rate cuts. The European Central Bank has cut rates three times this year to 3.25 per cent amid deepening concerns about lacklustre growth.
Markets expect another quarter-point cut next month followed by further reductions taking the rate to 1.75 per cent by the end of 2025.
Jane Foley, senior FX strategist at Rabobank, said the euro had taken 'a step closer to parity' with the dollar.
Struggle: The purchasing managers' index data sent the euro plunging to just above $1.03 versus the US currency, its lowest since November 2022
However, it was little changed versus the pound, after PMI data for the UK also proved dismal as Labour's tax raid on employers in the Budget took its toll. Sterling was trading at just over €1.20.
The eurozone PMI figures showed the services sector going into reverse for the first time in ten months and the decline in the manufacturing sector deepening.
Germany, Europe's biggest economy, is in limbo after its coalition government collapsed this month – and elections are not due until February. Meanwhile, revised figures yesterday downgraded third-quarter growth from 0.2 per cent to 0.1 per cent.
The country, once a manufacturing powerhouse, is in crisis as demand from China slumps and its vast car industry grapples with the transition to electric vehicles.
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Bosch became the latest industrial giant to be hit yesterday, announcing 3,500 job cuts, affecting the part of the company that develops technology for vehicles.
US car maker Ford is also cutting thousands of jobs in Germany while Volkswagen, Europe's biggest car maker, is expected to close as many as three factories.
In France, hard-Right legislators are threatening to topple prime minister Michel Barnier's fragile coalition in a dispute about the 2025 budget.
Adding to the gloom is the fear that Donald Trump's threatened trade tariffs will hurt the European economy.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which compiled the PMI figures, said: 'Things could hardly have turned out much worse. The manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth.
'It is no surprise, given the political mess in the biggest eurozone economies lately.
'France's government is on shaky ground and Germany's heading for early elections. Throw in the election of Donald Trump and it is no wonder the economy is facing challenges.'
Bert Colijn, chief economist at ING Bank, said 'The November PMI is another wake-up call for eurozone policymakers that the economy continues to show signs of weakness.
'New business is weakening again for manufacturing and services with export orders in particular being down sharply as the eurozone economy battles weak demand from abroad.'
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