Dollar sharply lower as Asian equities plunge, demand for euro, yen boosted
On Tuesday the greenback was lower versus the euro and the yen after Chinese data pointed to economic weakness sending Asian shares lower and spurring risk aversion.
EUR/USD was up 0.96% to 1.1321, extending gains from last week’s lows of 1.1155.
USD/JPY was down 0.92% to 120.11, moving further back from Friday’s high of 121.73.
China’s official manufacturing gauge released Tuesday showed activity in August slipped to a three-year low. The purchasing managers index fell to 49.7 from 50 in July, below market forecasts of 49.8 and its lowest level since August 2012. Readings below 50 indicate contraction. Separately, the Caixin China manufacturing PMI fell to 47.3 in August from 47.8 in July, its lowest point in more than six years.
The weak data fueled concerns over a worsening slowdown in the world’s second-largest economy.
Shares in China and Japan were sharply lower with the Shanghai Composite closing 1.22% lower and the Nikkei 225 plunging 3.84%, which spurred demand for low yielding euro and yen. Market players often use low-yielding currencies to fund positions in higher-yielding currencies and equities, known as carry trades.
The greenback was also under pressure amid ongoing worries over whether the recent rout in global financial markets will make the Federal Reserve delay hiking short-term interest rates.
Market players were now looking ahead to Friday’s U.S. jobs report for August, which could help to provide clarity on the likelihood of a near-term interest rate hike.
