By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch)—The dollar made gains versus most major rivals on Wednesday, with the euro stumbling after data indicated a deepening downturn for the euro-zone manufacturing sector and unemployment in the region hit its highest level since the introduction of the shared currency.
The dollar index DXY +0.59% , which measures the greenback against a basket of six major rivals, traded at 78.878, up from 78.829 in late North American trading on Tuesday.
The euro EURUSD -0.01% declined to $1.3147 versus the dollar, down from $1.3239. The euro EURGBP -.00% lost 0.5% versus the British pound to change hands at 81.17 pence. The pair traded as low as 81.11 pence, the lowest since June 2010, according to FactSet Research data.
Data showed unemployment in the euro zone rose to a euro-era high of 10.9% in March from 10.8% in February.
Craig Erlam, market analyst at Alpari UK in London, said an unexpected rise in German unemployment in April dealt the biggest blow to sentiment. The number of unemployed rose by 19,000, the country’s labor agency said, defying forecasts for a fall of 10,000. The increase marked the largest monthly rise in three years.
Germany’s labor market remains strong, but the unexpected result in Europe’s biggest economy was sufficient to spook investors, he said.
Euro weakness was also tied to the final reading of the April purchasing managers' index, or PMI, for the euro-zone manufacturing sector. The reading fell to 45.9 from a preliminary reading of 46.0 and was down from 47.7 in March.
A reading of less than 50 indicates a contraction in activity. A three-point drop in Italy’s manufacturing PMI to 43.8 caused the euro to lurch lower, said Adam Cole, head of G-10 FX strategy at RBC Capital Markets in London.
On Tuesday, the dollar index jumped after a better-than-expected report on U.S. manufacturing. Read more on Tuesday’s currency action.
“The moves in the markets over the past few days suggest that positive U.S. data surprises are U.S.-dollar-supportive insofar as it implies greater risk of no fresh stimulus post the expiry of [the Federal Reserve’s Operation] Twist in June,” said currency strategists at BNP Paribas.
On the other hand, “weak data puts more Fed stimulus back on the table, bringing the U.S. dollar closer to its knees, providing it does not sour market risk appetite too much,” they said, adding that further U.S. easing would be “data-dependent.”
Plenty of key U.S. data is due out this week, with ADP payrolls numbers slated for later Wednesday and the more closely watched U.S. nonfarm jobs statistics Friday.
The British pound GBPUSD -0.01% fell to $1.6179 versus the dollar, down from $1.6225 on Tuesday.
The Australian dollar AUDUSD -0.02% slipped to $1.0325, compared with $1.0335 Tuesday.
The Australian dollar had fallen sharply Tuesday after the Reserve Bank of Australia cut its key cash rate by a larger-than-expected half percentage point.
Against the Japanese yen USDJPY +0.06% , the dollar bought ¥80.27, rising from ¥80.20 late Tuesday, and from ¥79.82 late Monday.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
