Euro falls as economic worries deepen in Germany

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

The single currency, trading around $1.10 before the numbers were released, dropped 0.4 percent to $1.0972, its weakest since September 12.

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.

The dollar was boosted by the euro’s decline, and its index - which measures the greenback against a basket of currencies - was last up 0.3 percent at 98.776.

Increasing talk of fiscal stimulus in the euro zone has raised bond yields in the region, although not all analysts see much of a boost for the single currency in the context of concerns about global trade and slowdown fears.

“We see little upside scope for EUR/USD here,” MUFG analysts said in a note.

Elsewhere, foreign exchange markets were mostly quiet, though there were some signs of risk appetite as Japan’s yen weakened against higher-yielding FX after talks in Washington between US and Chinese trade deputies were described as “productive.”

Volumes in Asia were dampened by a public holiday in Japan.

A US-China trade breakthrough had seemed unlikely after President Donald Trump told reporters on Friday he was “not looking” for a partial deal, and Chinese officials then cancelled goodwill visits to US farmers.

But both sides later published positive statements, 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.

The yen was last down 0.2 percent at 107.75 yen per dollar. China’s yuan added 0.1 percent to 7.112 yuan in offshore markets. Sterling slipped slightly to $1.2459.

The Australian dollar rose 0.1 percent to $0.6772, while against the yen it rallied 0.4 percent and was on track for its best day since Sept. 12.

Despite the more positive tone in forex markets on Monday, investors remain nervous about the geopolitical outlook, and equity markets fell in early trading.

“I think there’s still a lot of nervousness around,” said Shane Oliver, chief economist at AMP Capital, citing Middle East tensions and the US-China trade dispute as drivers.

“These things have a habit of escalating and de-escalating and then escalating again...it is a bit finely balanced at the moment,” he said.