LONDON—The euro fell sharply against a strengthening dollar on Friday amid nervousness over banks, with better-than expected economic data failing to lift sentiment.
Flash Purchasing Managers’ Index (PMI) data failed to lift the single currency as sentiment in markets were fragile with European banks falling 5.3 percent.
S&P Global’s flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, bounced to a 10-month high of 54.1 in March from February’s 52.0, data showed on Friday.
That was well above the 50 mark separating growth from contraction and above all forecasts in a Reuters poll.
“The euro had already plunged below the $1.08 support line before the composite euro zone PMI data were released this morning,” said Jane Foley, Head of FX Strategy at Rabobank London.
“The data were better than expected, but the mood in the market is risk aversion which is supporting another move back to the safe haven dollar,” she added.
Fuelling concerns about the overall stability of Europe’s banks, Deutsche Bank shares fell 14 percent.
The euro sank 1 percent to $1.0722. The dollar index, which measures the currency against six major rivals, rose 0.6 percent at 103.26.
Risk aversion also sent sterling 0.6 percent lower to $1.2209, despite data showing the British economy was set to grow in the first quarter and confidence was growing.
The pound touched a seven-week high of $1.2341 on Thursday in volatile trading after the Bank of England raised interest rates by 25 bps, but said a surprise resurgence in inflation would probably fade fast, stoking speculation it had ended its run of hikes.
The Fed on Wednesday raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of banking sector turmoil even as Fed Chair Jerome Powell kept the door open on further rate increases if necessary.
U.S. Treasury Secretary Janet Yellen on Thursday reiterated that she was prepared to take further action to ensure that Americans’ bank deposits stayed safe, to ease investor nerves.
Banking stocks have been battered this month following the sudden failures of two regional U.S. lenders and the emergency sale of embattled Swiss bank Credit Suisse to rival UBS.
Christopher Wong, currency strategist at OCBC, said the FX world seemed to suggest a bout of risk aversion with safe haven proxies, gold and yen outperforming and most other currencies softer.
“I think with sentiment still fragile, price action can swing both ways depending on whether there are any contagion surprises.”
The safe haven yen was also in demand, up 0.85 percent to 129.67 per dollar, touching a seven-week high.
Japan’s core consumer inflation slowed in February, but an index stripping away energy costs hit a four-decade high, data showed on Friday.
With inflation still exceeding the Bank of Japan’s 2 percent target, the data will keep alive market expectations of a near-term tweak to its bond yield control policy, according to analysts.
