Investing.com – Citigroup has doubled down on its bearish stance, citing the recent disappointing European economic activity data.

Data released earlier this week showed that eurozone business activity contracted sharply this month.

HCOB’s preliminary , compiled by S&P Global, sank to 48.9 this month from August’s 51.0, below the 50 mark that separates growth from contraction for the first time since February.

The downturn appeared broad-based with Germany, Europe’s largest economy, seeing its decline deepen while France, the bloc’s second biggest – returned to contraction following August’s Olympics boost.

The bank cited downside risks to growth in the eurozone, saying manufacturing remains a drag while the one- off boosts to services (e.g., Olympics) may be reversing. 

“Moreover, while the manufacturing slump is a global issue, the US remains more insulated than Europe,” Citi said. “With markets pulling forward Fed cuts after the September FOMC, we think focus can shift to whether the ECB is falling behind the curve, particularly if European data continue to weaken while US initial claims remain low.”

The backdrop is also one where US election risk should resurface as a headwind for EUR; swing state polling is tight (we expect some USD+ premium to be priced) and the next US jobs report is not until Oct. 4. 

“We remain short EUR/USD in both spot and options,” says Citi, ceiling a spot reference rate of 1.1112.

At 07:35 ET (11:35 GMT), EUR/USD rose 0.1% to 1.1122.