EUR, GBP tumble on door activity data, UK mini-budget

LONDON/NEW YORK, Sept 23 (Reuters) – The euro and sterling surged to fresh 20- and 37-year lows against the dollar on Friday, after a survey showed business activity in the euro zone and Britain accelerated this month and the economy is likely to enter a recession.

Also weighing on the pound was the announcement of tax cuts and support measures for households and businesses by the new UK finance minister, Kwasi Kwarteng, with the UK Debt Office planning to issue an additional £72bn ($79.74bn) this fiscal year. Fund stimulus programs.read more

Sterling was on course for its biggest weekly loss against the dollar in two years after hitting a fresh 37-year low of $1.1022. Sterling was last down 1.9 percent at $1.1049.

UK bond yields are set for their biggest one-day rise in decades.read more

“The U.K.’s budget proposal does not reflect the needs and realities of the U.K. economy, which may require businesses to pay more so the government can receive higher revenue,” said Juan Perez, head of trading at Monex USA in Washington. .

“Amid severe recessionary pressures and a swift market reaction, much of the UK’s growth could come from further debt,” he added.

Earlier in the morning, U.K. PMI data showed that Britain’s economic downturn has worsened this month as businesses battle soaring costs and weak demand.read more

In line with the pound, the euro fell 0.9% to $0.9755 after hitting its lowest level since October 2002 at $0.9726.

Part of the decline was due to data showing S&P Global’s Eurozone Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, fell further in September.read more

The slump in German business activity deepened as rising energy costs hit Europe’s largest economy and new business fell for companies.read more

The European common currency was on track for its biggest weekly percentage drop since March.

Central Bank Policy

The yen fell 0.5% to 143.14 against the dollar, but was on course for its first weekly gain in more than a month after Japanese authorities intervened in the market on Thursday to support the yen for the first time since 1998.

The yen rose more than 1 percent on Thursday on news that Japan bought the yen to defend the battered currency. Trading was light on Friday, with Japanese markets closed for a public holiday.read more

The U.S. dollar index, which measures the greenback against a basket of currencies including the euro, pound and yen, surged to 112.44, its highest level since May 2002, and surpassed two decade highs hit earlier this week. It was last up 1% at 112.38 and posted its best weekly performance since March 2020.

“Unlike any other time in recent decades, the dollar is really a safe haven because the war and its effects have not affected U.S. domestic goals,” said Monex’s Perez.

The Bank of England raised interest rates by 50 basis points on Thursday in an attempt to tackle inflation, but like previous hikes in recent months, the move failed to support the pound as it was overshadowed by concerns about the economy.

This week, a very hawkish policy statement from the Federal Reserve and a rise in U.S. Treasury yields have boosted the dollar.

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Currency bid price at 10:10am (1410 GMT)

Reporting by Joice Alves in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Rae Wee; Editing by Susan Fenton and Jonathan Oatis

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