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Euro slips as PMIs signals gloomy outlook; yuan tanks

Trade war fears knocked future expectations to their weakest in over six years, a survey showed

The euro fell on Thursday, heading towards a three-week low, as an uptick in euro zone business growth was offset by another decline in China’s currency.

Euro zone business growth picked up in August, as services expanded and manufacturing contracted at a slower pace. But trade war fears knocked future expectations to their weakest in over six years, a survey showed.

“Though the eurozone PMI data was slightly better than expected, it is fairly gloomy stuff and there is some degree of concern among investors about the Chinese yuan’s decline,” said Neil Mellor, a senior FX strategist at BNY Mellon in London.

The euro slipped 0.1% to $1.1072, nearing an Aug. 1 low of $1.1027.

Investors also sold Asian currencies after the Chinese yuan fell to a 11-year low against the dollar, indicating trade tension between the world’s two biggest economies remained a major issue.

Against the dollar, the yen advanced by 0.3% to 106.29 yen, nearing last week’s eight-month low of 105.05 yen.

The Australian dollar weakened 0.2% to $0.6768. The Canadian dollar slipped 0.1%.

“Some investors like commodity trading advisors have linked the downward move in the yuan and Chinese stocks to selling cross yen,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

In onshore trading, the yuan fell to 7.0752 per dollar, its weakest since March 2008, before recovering to 7.0732. In offshore trade, the dollar rose 0.29% to 7.0872 yuan.

Major Chinese state-owned banks were seen supporting the yuan by receiving dollar/yuan swaps, traders told Reuters.

Investors also said the Fed’s latest minutes confirmed a growing view that U.S. policymakers are reluctant to begin a big rate-cutting cycle in the coming months.

Minutes of the Fed’s July meeting showed policymakers were divided over whether to cut interest rates but united in wanting to signal they were set on more cuts.

The minutes led investors to lower their expectations of big rate cuts from the Fed next month, but bond markets still expect rates to be cut by more than 60 basis points by the end of the year.

Against a basket of six other currencies, the dollar was steady at 98.324.


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