Euro drops as economic gloom deepens

• The European Central Bank has urged governments to focus on fiscal policy because the room for more monetary easing is limited.
• "It suggests that Germany is not going to grow at all in the second half of the year."
• The euro also slid versus the Swiss franc, losing 0.5pc to as low as 1.0857 francs.

LONDON: The euro fell on Monday after German flash purchasing managers' index survey data for September was weaker than expected, raising more fears about the health of the economy.

The survey showed that German private sector activity shrank for the first time in 6-1/2 years in September as a manufacturing recession deepened unexpectedly and growth in the service sector lost momentum.

"Manufacturing is even worse than it was during the (2013) sovereign debt crisis," said Michael Hewson, CMC Markets' analyst.

"It suggests that Germany is not going to grow at all in the second half of the year."

Business growth across the region has also stalled this month, missing forecasts, another PMI survey showed.

Increasing talk of fiscal stimulus in the euro zone raised bond yields in the region last week, but many analysts say it is not enough to boost the single currency in the context of concerns about global trade and slowdown fears.

Hewson added that the weakening euro suggested investors did not think Germany - the euro zone's biggest economy - was moving towards a significant fiscal package.

The European Central Bank has urged governments to focus on fiscal policy because the room for more monetary easing is limited.

The single currency, trading around $1.10 before the numbers were released, dropped 0.5pc to as low as $1.0966, its weakest since Sept. 12.

The euro also slid versus the Swiss franc, losing 0.5pc to as low as 1.0857 francs.

"The ECB is being ignored for now and hence prospects of any near-term shift in policy do not look particularly realistic," MUFG analysts said. "We see little upside scope for EUR/USD here."

The dollar was boosted by the euro's decline, and its index - which measures the greenback against a basket of currencies - was last up 0.2pc at 98.748.

The dollar has held up well in recent months as investors are attracted to its relatively high yield and the strength of the US economy.

Elsewhere, foreign exchange markets reflected fading optimism over a US-China trade deal.

Both China and the United States published positive statements after the latest talks, with the US Trade Representative's office describing the talks as "productive" and China's Commerce Ministry calling them "constructive". October's high-level talks remain on track.

But the safe-haven Japanese yen reversed its earlier losses and was last up 0.1pc at 107.41 as any optimism was overshadowed by worries about the health of the global economy.

China's offshore yuan dropped 0.1pc to 7.1237 yuan.

Sterling slipped 0.2pc to $1.2442 as British Prime Minister Boris Johnson cautioned that there would be no Brexit breakthrough at talks with European leaders in New York.