Analysts said the euro zone economy appears headed for a recession.
“The US economy is slowing down, but the European economy is slowing down faster. This is the reason why the currency market continues to be underweight the euro”said Viraj Patel, macro strategist at Vanda Research.
The euro was already weaker, even after the ECB hiked interest rates by more than 50 basis points (bps) on Thursday, as its new tool to protect highly indebted states from rising borrowing costs loans did not impress investors.
Analysts also noted that the ECB’s removal of forward guidance on rates and moving to a data-dependent stance at each meeting gives the central bank little window of opportunity for further tightening.
“Maybe the ECB can pull off another hike in September, but judging by the direction of the European economy, I don’t think they are in a position to talk about rate hikes in December or early next year,” Patel added.
Traders are pricing in less than 110 basis points of ECB rate hikes for December, down from 120 basis points prior to the data.
At 1047 GMT, the euro was down 0.72% at 1.01575. Dollars, pulling back further from Thursday’s peak of $1.0279 following the ECB’s sharp rate hike.
The dollar index -which measures the performance of the greenback against a basket of six currencies, the euro being the most weighted- last rose 0.46%, to 107.10, after the 0.34% drop in the Thursday.
For the week, the index is still down 0.83%, the biggest drop since May 29 and its first losing week in four, as disappointing US data dampened expectations of a big 100 basis point rally ( bp) by the Federal Reserve next week.
Traders now give an 83.7% chance that the Federal Open Market Committee will raise interest rates by 75 basis points on July 27, with a 16.3% chance of a full hike.
Elsewhere, sterling fell 0.53% to $1.1940, cutting its weekly gain to 0.59%, the biggest since late May.
The dollar rose 0.1% to 137.475 yen, with the Japanese currency headed for its first weekly gain against the greenback in eight weeks.
Source: Ambito
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