The euro was broadly lower against the other major currencies on Tuesday as weak German industrial production data added to fears over the outlook for the euro zone economy.
The euro hit session lows after data showed that industrial output in Germany dropped by 4.0% in August. It was the largest decline since early 2009 and was much worse than forecasts for a fall of 1.5%.EUR/USD hit session lows of 1.2605 and was last down 0.22% to 1.2625.
Production of new cars slumped by more than 25% month-over-month in August, the data showed.
The report came one day after data showed that German factory orders fell 5.7% in August, fuelling fears that the euro area’s largest economy is falling into a recession.
The euro gained ground against the dollar on Monday, recovering from two year lows as the greenback slid lower amid profit taking, following Friday’s rally on the back of robust U.S. employment data.
Diverging monetary policy expectations have boosted the dollar against the euro in recent months, with the European Central Bank likely to stick to a looser monetary policy stance amid concerns over deteriorating inflation expectations and slowing growth.
The yen found support on Tuesday after Japanese Prime Minister Shinzo Abe voiced concerns over the impact of a weaker yen on the economy.
The Bank of Japan left monetary policy unchanged at the conclusion of its two day policy meeting earlier Tuesday, but acknowledged that declining domestic demand as a result of a sales tax increase in April is leading to weakness in production.
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