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The euro is trading below $1.35, having dropped since the US announced an ISM manufacturing level of 56.4 for October when analysts were expecting a reading of 55.3. The euro was already losing ground to the US dollar and this report accelerated the decline.
At lunch time, James Bullard of the Federal Reserve stated that the bond buying scheme could be reduced if the labour markets continue to improve, echoing Ben Bernanke’s hints made on Wednesday that tapering may begin sooner rather than later.
At the start of the week the euro was trading above the $1.38 level, which was close to a two-year high. Traders were already locking in their profits ahead of the US Federal Reserve statement, but Mr Bernanke’s suggestion sent the euro sliding.
The euro has lost ground versus the US dollar for the fifth day in a row; however, the financial markets don’t move in straight lines so we could see some traders closing out their short position, which could pull the euro back towards the $1.36 mark.