Euro struggles as investor sentiment disappoints

LONDON (Reuters) – The euro dived toward a three-month low against a broadly steady dollar on Tuesday as disappointing data tarnished some of the single currency’s allure while Antipodean currencies held on to their gains, buoyed by robust data and hawkish comments.

Investor sentiment in Germany, the euro zone’s biggest economy, remains at a high level but fell sharply in July, the ZEW economic research institute reported, while data showed orders for German-made goods posted their sharpest slump in May since the first lockdown in 2020.

The data dented the euro which weakened about 0.2% to $1.1844 towards midday trading in Europe. It fell to an early April low of $1.1807 last week.

“Both [indicators] work in that direction, but the timing of the move suggests it is more flow-related in quiet summer markets,” said Adam Cole, chief currency strategist at RBC.

The common currency has been also struggling to keep up with the greenback in the past month with the European Central Bank seemingly far behind many of its peers in the tightening cycle.

“As inflation pressure in the euro zone remains comparatively moderate the ECB is likely to take its time with the reduction in asset purchases,” Commerzbank strategist You-Na Park-Heger wrote in a morning note to her clients.

“A first rate hike is still a long way off anyway,” she added.

ECB policymakers are in the middle of debating a new strategy, with many now backing the notion of letting inflation surpass 2% for a while after it lagged below that level for most of the past decade.

ECB projections put annual price growth at 2.6% in the last quarter of this year from 1.9% last month. It is then seen falling back to 1.5% in 2022 and 1.4% in 2023.

Earlier, the New Zealand dollar jumped after a strikingly strong survey of business conditions prompted investors to wager a rate hike could come in November.

The kiwi was up about 0.8% at $0.7082 after having reached its firmest since mid-June.

The Aussie rose as much as 1.2% at one point to $0.7599, after the Reserve Bank of Australia pared bond purchases and tweaked its rates outlook to open the door just a sliver for the possibility of hikes before 2024.

That decision puts the RBA in a small but growing club of central banks stepping back from massive pandemic-era stimulus.