The euro retreated against the dollar Thursday as economic data pointed to increased prospects of a recession in Europe, while Wall Street stocks finished higher following another volatile session.
US stocks overcame a midday sag as Federal Reserve Chair Jerome Powell, in a second day of testimony on Capitol Hill, downplayed the idea that government pandemic aid was the key factor fueling US inflation as he continued to vow a tough response to inflation.
But Karl Haeling of LBBW said markets have “significantly shifted rate hike expectations” over the last week as recession chatter has grown. Investors now anticipate the United States will be essentially finished with rate hikes in 2022 rather than in 2023.
The broad-based S&P 500 finished up one percent.
Meanwhile, economic growth in the eurozone plummeted in June, a key survey showed, as high prices took the wind out the strong recovery from the deep lows of the coronavirus pandemic.
The closely-watched monthly purchasing managers’ index by S&P Global slumped to 51.9 from 54.8 in May. A figure above 50 indicates growth.
PMI data also revealed that Britain’s private sector business activity is languishing at its lowest level for more than a year on decades-high inflation.
“The latest PMI numbers from France and Germany have weighed on the euro, with economic activity slowing more than expected in June, raising concerns that both countries are heading into a recession,” said market analyst Michael Hewson at CMC Markets.
“While ECB (European Central Bank) policymakers continue to insist that a recession isn’t their base case, all the evidence points to exactly that,” he added.
