Euro Hit by Ifo, PMIs, Dollar Looks Ahead to Fed

By Reuters

The euro was hit on Monday by contraction in the euro zone's manufacturing and service sectors, while the dollar benefited as some investors bet on a hawkish
The euro fell versus the yen, over a yen below the 11-month struck on Friday.

The dollar rose against the Japanese currency.

Data Dent

The euro zone services PMI, which covers companies from cafes to banks, fell to 49.5 in June, while its manufacturing equivalent hit 49.1 -- with both indices slipping into contraction territory below the 50.0 watermark.

At the same time, the German Ifo business climate index fell more than expected to 101.3 in June -- its lowest since December 2005.

Ifo's current conditions and expectations indices also came in below consensus.

Although analysts said it was probably too late for the ECB to abandon its plans for a July rate hike to 4.25 percent, they admitted the data further reduced the chances of any follow on tightening.

"The falls are probably not sharp enough to stop the ECB hiking in July. It would take more data on the downside for inflation for them to wait. But the data today will cause some intense debate about rate-setting," said Juergen Michels, economist at Citi.

Currency markets paid little attention to the oil price, which rose despite Saudi Arabia promising to pump more oil.

Copyright 2008 Reuters.