Euro slides as PMIs fuel ECB easing expectations

LONDON, Feb 5 (Reuters) – The euro slid on Tuesday after surprisingly weak euro zone service sector data fuelled expectations that the European Central Bank might have to bring forward any interest rates cuts to shore up growth.

The euro fell more than 1 percent on the day against the dollar after figures showed service sector growth across the 15-nation bloc slowed in January to its most sluggish in 4-1/2 years. Germany, Spain and Italy registered contractions.

“The sharp drop in PMI played straight into the hands of the euro bears, supporting their argument that the ECB will not be able to remain hawkish much longer and will have to follow the Fed by lowering rates relatively soon,” said Boris Schlossberg, chief currency strategist for DailyFX.com.

A separate report later showed Euro zone retail sales defied expectations of a monthly rise in December and fell, underscoring a slowing economy.

The ECB meets to set interest rates on Thursday, and is widely expected to keep them on hold at 4 percent.

“In the past couple of weeks, we’ve seen euro/dollar run up to try to test new highs. But last Friday, euro/dollar moved lower even though we got a weak U.S. non-farm payrolls number,” said Adarsh Sinha, analyst at Barclays Capital.

“That in itself suggests the bullish euro sentiment against the dollar, or positions, were probably too extreme, which is why we saw the reversal on Friday and which is why we’re seeing a fairly large follow-through following weak economic data in the euro area.” At 1200 GMT the euro was down 1.1 percent at a near 1-1/2 week low of $1.4667, well on track for its steepest one-day fall in two weeks.