# Dollar slides on contraction in private sector activity Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-08-23 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Dollar Retreats from Two-Decade High against Euro on Weak US Meta Description: Get the latest updates on the dollar's retreat against the euro due to U.S. private sector contraction, hinting at potential Fed rate easing. Read more URL: https://financedigest.com/dollar-slides-on-contraction-in-private-sector-activityhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-08-23t020004z1lynxmpei7m01frtroptp4global-economy-dollar-1736815388966-compressed.jpg) By Dhara Ranasinghe LONDON (Reuters) – The dollar pulled back from a fresh two-decade high against the euro on Tuesday after a report showed U.S. private [sector activity contracted for a second-straight month](https://www.financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectors.html "Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors") in August, raising prospects the Federal Reserve will ease its rate hiking cycle. The S&P [Global flash composite purchasing managers index](https://www.financedigest.com/2017-global-payroll-complexity-index-reveals.html "2017 Global Payroll Complexity Index Reveals ") (PMI) for August dropped to 45 this month, the lowest since February 2021, as demand for services and manufacturing weakened in the face of inflation and tighter financial conditions. A reading below 50 indicates a [contraction in activity](https://www.financedigest.com/asias-factory-activity-contracts-despite-chinas-covid-reopening.html "Asia’s factory activity contracts despite China’s COVID reopening"). The drop in demand was exactly what the [Fed has been trying to achieve with its stiffest run of interest rate](https://www.financedigest.com/wage-data-dents-dollar-recovery-before-fed-rate-decision.html "Wage data dents dollar recovery before Fed rate decision") increases since the 1980s. The [Fed has hiked rates](https://www.financedigest.com/oil-up-2-as-dollar-weakens-on-small-us-fed-rate-hike.html "Oil up 2% as dollar weakens on small US Fed rate hike") from near zero in March to their current range of 2.25% to 2.50%, with more expected in the months ahead, as it tries to tame inflation, which is running near a 40-year high. The [manufacturing and services PMI came in well below expectations](https://www.financedigest.com/uk-manufacturers-expect-output-to-fall-3-2-in-2023.html "UK manufacturers expect output to fall 3.2% in 2023") which is raising concerns about how strong this economy is and supporting the narrative that Fed Chair Powell might be more inclined to deliver that pivot and slow the pace of tightening,” said Ed Moya, senior market analyst at Oanda. Against a basket of six [major currencies](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades"), the dollar index was down 0.523% to 108.42 at 10:45 a.m. Eastern time (1445 GMT), after earlier touching its highest [level since](https://www.financedigest.com/optimism-levels-drop-to-low-of-17-percent-according-to-first-survey-since-banking-regulations.html "Optimism levels drop to low of -17 percent, according to first survey since banking regulations") mid-July. The euro was up 0.35% against the greenback at $0.9977, after having [hit a fresh](https://www.financedigest.com/londons-ftse-100-hits-fresh-record-high-as-telecoms-surge.html "London’s FTSE 100 hits fresh record high as telecoms surge") two-decade low of $0.99005 earlier in the session on renewed concerns that an energy shock will keep inflation elevated, making a recession in Europe all but certain. [Data showed that business activity in Europe contracted](https://www.financedigest.com/keysource-awarded-major-contract-to-design-nationwide-network-of-data-centres-throughout-china.html "KEYSOURCE AWARDED MAJOR CONTRACT TO DESIGN  NATIONWIDE NETWORK OF DATA CENTRES THROUGHOUT CHINA") less than forecast in August, though the outlook was still bleak. The renewed concerns about Europe following the spike in gas [prices is the main reason why the euro](https://www.financedigest.com/carrefour-unveils-30-euro-shopping-basket-in-spain-after-government-price-cut-proposal.html "Carrefour unveils 30 euro shopping basket in Spain after government price cut proposal") is down,” said Holger Schmieding, chief economist at Berenberg. British and Dutch wholesale gas prices rose sharply on Monday as the prospect of maintenance on the main Russian pipeline to Europe [put markets](https://www.financedigest.com/new-product-launches-to-put-the-marker-pens-market-in-a-good-stead.html "New Product Launches To Put The Marker Pens Market In A Good Stead") on edge. Russia will halt natural gas supplies to Europe via the [Nord Stream](https://www.financedigest.com/denmark-invites-nord-stream-operator-to-help-salvage-unidentified-object.html "Denmark invites Nord Stream operator to help salvage unidentified object") 1 pipeline for three days at the end of the month, the latest reminder of the precarious state of the continent’s energy supply. Heat waves on the continent have already put a strain on energy [supply and worries are growing that any disruption during the winter](https://www.financedigest.com/ceraweek-europe-gas-supplies-to-stay-tight-2-more-winters-equinor-ceo-says.html "CERAWEEK-Europe gas supplies to stay tight 2 more winters, Equinor CEO says") months could be devastating for business activity. That’s all hurt the euro, which is down more than 12% so far this year, and has shed almost 3% in August. [China’s yuan](https://www.financedigest.com/dollar-slips-yuan-gains-on-china-pmi-hot-inflation-lifts-euro.html "Dollar slips, yuan gains on China PMI; hot inflation lifts euro") meanwhile weakened to a two-year low and sterling briefly touched its weakest since March 2020. [Sterling recovered some ground after the PMI data](https://www.financedigest.com/sterling-edges-lower-ahead-of-key-data.html "Sterling edges lower ahead of key data") and was up 0.56% against the greenback, after having touched $1.1718 earlier in the day. China’s yuan fell to an almost two-year [low of 6.8499 per dollar](https://www.financedigest.com/euro-rises-after-spanish-cpi-dollar-slips-towards-8-mth-low.html "Euro rises after Spanish CPI, dollar slips towards 8-mth low") as Beijing’s steps to easy policies to revive faltering growth and the Federal Reserve’s relentless tightening streak kept pressure on the Chinese currency. (Reporting by John McCrank in New York; Additional reporting by Dhara Ranasinghe in London; Editing by Clarence Fernandez and Nick Zieminski) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---