With European purchasing managers indexes (PMIs) again providing a disappointing reading this morning, it is clear that Europe’s manufacturing continues to suffer. As a result, the euro weakened enormously against the dollar. Currently, one dollar will give you 1.042 euros, indicating the two currencies are getting closer to parity.
Meanwhile, other EU currencies, such as the Hungarian forint, continue to weaken as well. One dollar now equals 393 forints, whereas at the beginning of October, it was equal to 352 forints. The dollar has seen a rapid rise against the forint over the last two months.
Now, the euro is at a two-year low against the dollar. According to Hungarian business portal Portfolio, it is clear that European manufacturing has been cratering for some time, but now services are seeing a sharp deterioration as well. The BMI of the German and French service sectors also fell below 50 points, indicating a decrease in activity.
Based on this data, it may also mean that the hoped-for rebound in the Eurozone has slipped away. From an investor’s point of view, this means two things:
- Due to the worsening growth prospects, the growth gap against the dollar is worsening, which is influencing the weakening of the euro.
- The ECB may reduce interest rates more or faster than expected, which also has a weakening effect on the euro through the change in the interest rate differential.
After the PMI data was released, the euro weakened against the dollar near 1.033, it seemed that serious liquidations were taking place in the market.
In the coming weeks, it will be important to monitor the statements of ECB decision-makers. At the previous interest rate meeting, even President Lagarde pushed aside questions about the extent to which the weakening economy could influence the interest rate path.
By definition, this is also not good for other currencies, such as the Hungarian forint; although there is no movement against the euro, it will continue to weaken against the dollar.
