The euro slipped against major currencies on Thursday, driven by data showing contraction in manufacturing in most euro zone countries, a day ahead of a key US jobs report that could add to market fears about recession. The pace of growth in the US manufacturing sector in August was better than economists had forecast, but still at its lowest level in two years.
--- Swiss franc extends rally as investors test SNB resolve "We aren't seeing a dollar rally, though, because at the end of the day, this does not remove the need for more stimulus from the Fed," said Kathy Lien, director of research at GFT Forex in New York. "The key is still job growth."
Data showing contraction in the manufacturing sectors of most euro zone countries drove broad euro selling, analysts said. The weakness extended to Germany, the euro zone's biggest economy, where manufacturing grew in August at its slowest pace in almost two years. The Swiss franc rallied sharply for the second day as investors took comfort in the Swiss National Bank's recent passive approach to the currency's strength after several weeks of activity last month.
"From Asia to the UK, the numbers signaled a continued loss of momentum," Jessica Hoversen, forex analyst at MF Global in New York, said of the manufacturing data. German new export orders fell at the fastest rate of all the EU countries surveyed for Markit's Purchasing Managers' Index. "The euro zone can no longer rely on Germany to sustain the lacklustre recovery," Hoversen said. "Beyond the data, the situation in Europe remains distressing."
In late afternoon New York trade, the euro was down 0.7 percent at $1.42697 on electronic trading platform EBS. "We think the situation in Europe is deteriorating quicker than the euro reflects," Hoversen said. The US government's closely watched monthly jobs report due on Friday should dictate currency trading. The euro is seen as most vulnerable to losses due to signs of weakness in both the European and global economies and because the euro zone remains far from a solution to its debt crisis.
Confidence about the euro zone's stability has been shaken by signs officials are dragging their feet on steps to ease debt problems in Greece and other countries, creating tensions in funding markets and raising worries about the health of financial institutions in the region.
"Concerns about Greece's debt burden in general is the main factor weighing on the euro, and complicating that today has been the euro zone economic data flow," said Stephen Gallo, head of markets analysis at Schneider FX. The Swiss franc rallied across the board, with the euro last down 2 percent at 1.13459 francs and the dollar 1.3 percent lower at 0.7951 franc.
The Swiss National Bank has been quiet since mid-August, when it flooded the market with francs, cut interest rates to near zero and intervened in the swap market to bring the franc down from record highs. "The SNB's sight deposit target of 200 billion francs has likely been reached by now, and given the silence from the SNB, investors might now try to test the SNB's resolve," said Chris Walker, currency strategist at UBS. At the latest session lows, the euro was the lowest against the Swiss franc since August 23, while the dollar fell to its lowest since August 26. The yen stayed under pressure on dollar buying by Japanese accounts, lifting the US currency 0.2 percent to around 76.812 yen on EBS and soothing jitters that the Bank of Japan would embark on another round of intervention to curb its strength.
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