Investors' sentiment hurt by weak German data; euro falls

The euro weakened on Thursday after data showed Germany's economy slowed in December, underscoring fears about a broader slump in Europe. Europe's largest economy is struggling with a cooling of the global economy and the impact of the dispute between trade giants the United States and China. The euro has lost around 1.3 per cent over the last week as investors bet the European Central Bank will keep monetary policy accommodative on weaker-than-expected growth and low inflation in the single currency area.

The euro was down 0.2 per cent at $1.1346, a two-week low, after German industrial output unexpectedly fell in December for the fourth consecutive month. "Another day, another piece of terrible German data. EUR/USD risks a move to $1.1300," said ING's chief EMEA FX and interest rate strategist, Petr Krpata.

Elsewhere the Australian dollar weakened further on expectations that interest rates will come down this year due to growth risks at home and abroad. In a remarkable shift from its long-standing tightening bias, Australia's central bank on Wednesday opened the door to a possible rate cut and acknowledged threats to the economy.

That saw the Aussie slump of 1.8 per cent in its worst one-day decline since June 2016. Many investors were caught off-guard because a day earlier the Reserve Bank of Australia steered clear of an easing signal. On Thursday the Aussie hovered near a more than one-week low at $0.7103.

The New Zealand dollar was down 0.3 per cent at $0.6765 following weaker-than-expected unemployment data on Thursday. The dollar index, a gauge of its value versus six major peers was up 0.2 per cent at 96.52, hovering close to its two-week high. The index has gained for three consecutive sessions.

Elsewhere, sterling was marginally lower at $1.2914. The British pound has weakened by 1.3 per cent in February due to Brexit woes. The United Kingdom is on course to leave the European Union on March 29 without a deal unless British Prime Minister Theresa May can convince the bloc to reopen the divorce agreement she reached in November.

The Bank of England is scheduled to meet later on Thursday and is widely expected to keep interest rates unchanged. "The BoE won't even consider changing interest rates until the terms to leaving the EU to become clear," said Kathy Lien, managing director of currency strategy at BK Asset Management.

"BoE Governor Mark Carney will reiterate his warning about the risks of a disorderly Brexit and reassure investors that they are ready to increase stimulus if it causes a major disruption in the markets," Lien added.

(With inputs from agencies.)