© Thomson Reuters File photo . illustration shows US dollar and euro bills
Written by Saqib Iqbal Ahmed
NEW YORK (Reuters) – The dollar fell against the euro after data showed that business activity in the euro zone surprisingly returned to modest growth in January.
As US business activity slowed in January, the manufacturing and services sectors contracted for the first time since September, and business confidence strengthened early in the new year.
"This appears to be another piece of data that shows what the Fed has been preaching. that there is room for more upside in the economy," said Juan Perez, director of trading at Monex USA in Washington.
Federal funds futures expect another two-quarter-point hike to around 5% in June before they start cutting rates later this year. The Federal Reserve itself has insisted on a 75 bps increase
"If we look at the PMI, it's clear that the Fed has held back on expansion, but the economy hasn't turned around as much as many people think," Peres said.
However, the dollar briefly rose against the euro after the US data, not far from the previous session's 9-month low, and traded lower on the day.
The euro rose 0.09% to $1.0881, just below Monday's nine-month high of $1.0927.
The single currency received support from a survey that supported the view that the eurozone economy is weathering strong inflationary pressures in the winter, analysts said.
Business activity in the euro zone returned to moderate growth in January, and inflation in Germany's services sector rose for the first time since June, according to surveys.
A strong economy allows the European Central Bank to raise interest rates significantly while fighting inflation.
"But if wages and other commodities shine negatively on the world, the euro will suffer the consequences much faster than the price," said Peres, head of Monex USA.
The dollar rose 0.44% to 130.095 yen, before hitting a one-week high against the yen.
The dollar fell to 127,215 yen last week, its weakest level since May, as the Bank of Japan's policy review could signal the end of its stimulus package, prompting investors to beat the central bank. However, the Bank of Japan did not change its policy, giving some peace to the dollar.
The pound was one of the worst-performing major currencies against the dollar, falling 0.34% to $1.2334 after a sharp slowdown in UK private sector economic activity in January.
Simon Harvey, head of currency analysis at Monex Europe, said: “At first glance, we expect the pound to underperform its European peers as economic data points to a widening gap between growth rates.
Meanwhile, bitcoin was little changed on the day at $22,973, up nearly a third since early January, as investors pulled back pessimism after the much-publicized collapse of crypto exchange FTX.
(Additional reporting by Amanda Cooper, London; Editing by Jacqueline Wong, Simon Cameron-Moore, Christina Fincher, Andrea Ritchie and Mark Heinrich)
