LONDON: The euro weakened on Wednesday, slipping against a broadly rising dollar and hitting a one-month low against the safe-haven yen on deepening worries about euro zone growth prospects and the looming threat of deflation.
Spain posted the weakest industrial output growth for almost a year early in European trading, but the dominant focus for markets remained an International Monetary Fund report from Tuesday that flagged the risk of deflation and the euro zone entering an outright recession in 2015.
That followed data from Germany showing industrial output in the euro zone's biggest economy fell by 4 percent in August - the biggest drop since the height of the financial crisis.
The euro was down 0.1 percent at 136.76 yen, close to a one-month low of 136.50 hit in Asian trade.
The latest data from Japan shows investors there sold 2.2 billion euros of assets in August, their first major sale since April 2014. Against the dollar, the euro was flat at $1.2665.
The single currency has fallen almost 10 percent against the dollar over the past five months as the outlooks for growth and monetary policy in the euro zone and United States have become increasingly divergent. "The story is not going to change: there's quite clearly been a sea change in attitudes towards the euro and the dollar," said Neil Mellor, a currency strategist at Bank of New York Mellon in London. "If there was one defining moment in the post-crisis period it has been that the ECB has taken away all reasons to hold the euro," Mellor added, referring to the cut of the deposit rate into negative territory.
FED MINUTES
Minutes of the Federal Reserve's last policy meeting are due later in the session and markets will be acutely sensitive to how the debate between hawks and doves on the committee was playing out.
Growth concerns in the euro zone and Japan and a lack of global inflationary pressure meant there was no urgency for the Federal Reserve to raise interest rates, even as it winds up its bond-buying stimulus programme.
Minneapolis Federal Reserve Bank President Narayana Kocherlakota said as much on Tuesday, arguing that low inflation compels the Fed to wait on rate increases, despite the fall in unemployment.
The safe-haven yen, having risen to a three-week high of 107.76 yen during Asian trading, was trading at 108.16 yen per dollar as investors, worried about global growth, sought less risky assets.
US Treasuries - also traditionally a safe haven - rallied strongly, sending yields sliding again.
The 10-year yield fell as far as 2.337 percent, bringing into view a 14-month trough of 2.303 percent set in August.
"Markets looked to be searching for reasons to take back risk off the table as they factor in the reality of some global growth slowdown and still present geo-political risks," said David de Garis, senior economist at National Australia Bank.
"They found it in the form of another downside data surprise from Germany with its weaker industrial production report and then a global growth downgrade from the IMF in their latest World Economic Outlook."
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