Euro down for fifth day on weak data

Tue Jul 24, 2012 9:33am EDT
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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The euro declined for a fifth straight session against the dollar and yen on Tuesday as weak euro zone data and a ratings watch on the region's strongest economies further dimmed the outlook for the common currency.

Germany's purchasing managers index showed both the manufacturing and services sector shrinking more than expected in July, while the equivalent French manufacturing survey was also well below forecasts.

The data came a day after Moody's changed its outlook for Germany, the Netherlands and Luxembourg to negative, warning that Europe's top-rated countries may have to increase support for indebted states such as Spain and Italy.

"The global economy is shrinking and the purchasing managers index is very much a sentiment index," said Tommy Molloy, chief dealer, at FX Solutions in Ridgewood, New Jersey. "It can't be a surprise that PMI numbers in the euro zone, or anywhere in the euro zone, are ugly even if that country happens to be the strongest member."

What concerned Molloy more was the ratings watch on the euro zone's supposedly healthiest economies, noting that the implications are fairly dire.

"It is underlining the fact that whatever resolution for Europe -- whether Greece exits or stays in the euro zone, giving up sovereignty, but facing the prospect of being eternally bailed out, will ultimately undermine the stronger members of the euro zone," Molloy said.

Other analysts said worries that more Spanish regions will follow Valencia and request financial aid from Madrid would keep Spanish bond yields high and encourage investors to sell the euro.

Spain was forced to pay higher yields on short-term debt at a sale on Tuesday while Spanish borrowing costs remained at levels which analysts say are unsustainable in the long term.   Continued...