By Joice Alves and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK, Sept 23 (Reuters) – The euro and sterling fell to new 20- and 37-year lows on Friday against a rising US dollar, after surveys showed the slowdown in business activity was accelerating this month across the euro zone and the UK and economies likely to enter a recession.
Also charging sterling, Britain’s new Treasury Secretary Kwasi Kwarteng announced tax cuts and measures to support households and businesses, and the UK Debt Office laid out plans for an additional £72 billion ($79.74 billion) of issuance. for this fiscal year to finance the stimulus.
sterling GBP= faced its biggest weekly decline against the US dollar in two years after hitting a fresh 37-year low of $1.1022. The pound was last down 1.9% at $1.1049.
UK bond yields have been set for their biggest daily rises in decades.
“The UK budget proposals do not reflect the needs and realities of the UK economy, which is likely to require businesses to pay more so the government can generate more revenue,” said Juan Perez, director of commerce at Monex USA in Washington.
“Much of the UK’s growth could come from further borrowing at a time of severe recessionary pressures and the market is reacting quickly,” he added
Earlier in the morning, UK PMI figures showed that the UK economy’s downturn has worsened this month as companies struggled with rising costs and flagging demand.
Movement in line with the pound, the euro EUR=EBS It fell 0.9% to $0.9755 after previously hitting its lowest level since October 2002 at $0.9726.
The decline was partly triggered by data showing that S&P Global’s Flash Eurozone Composite Purchasing Managers’ Index (PMI), which is viewed as a good indicator of overall economic health, fell further in September.
The downturn in German business activity deepened as Europe’s largest economy was hit by higher energy costs and companies saw a fall in new business.
Europe’s common currency was on track for its biggest weekly percentage drop since March.
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the yen JPY=EBS It was down 0.5% to 143.14 per the US dollar but is likely to register its first weekly gain in more than a month after Japanese authorities intervened in markets on Thursday to plumb the currency for the first time since 1998 support.
The yen gained more than 1% on Thursday after news that Japan had bought the yen to defend the troubled currency. Trading was thin on Friday as Japanese markets were closed for a holiday.
The Dollar Index = US dollars, which measures the US currency against a basket of euro, sterling and yen currencies, rose to 112.44, its highest since May 2002 and surpassed a two-decade high earlier this week. It was last up 1% at 112.38 and is set for its best week since March 2020.
“The dollar is indeed a safe haven like no other in recent decades as the war and its aftermath do not affect US domestic policy goals,” Monex’s Perez said.
The Bank of England raised interest rates by 50 basis points on Thursday in a bid to fight inflation, but as with previous hikes in recent months, the move failed to support the pound as worries about the economy overshadowed it.
The dollar was buoyed this week by a very hawkish announcement from the US Federal Reserve and rising Treasury yields. US10YT=RR
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(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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