Euro pushes to six-month high versus dollar ahead of ISM data
By William L. Watts, MarketWatch
LONDON (MarketWatch) — The dollar fell Friday, hitting a six-month low versus the euro, as investors remained focused on the potential for the Federal Reserve to take additional measures to boost the U.S. economy in coming months.
“As long as a further round of quantitative easing from the Fed is on the table then investors are not going to want to hold dollars,” said Kathleen Brooks, research director at Forex.com.
The dollar index (DXY 78.31, -0.41, -0.52%) , a measure of the greenback against a basket of six major currencies, stood at 78.200, down from 78.779 late Thursday.
The index fell 5.3% in September and declined 8.4% over the course of the third quarter — its biggest three-month drop since the second quarter of 2002.
The euro (EURUSD 1.3724, +0.0095, +0.6970%) traded at $1.3729, up from $1.3633 in late North American trading Thursday. The euro made an intraday high of $1.3763, its strongest level versus the dollar since March.
The European single currency jumped 7.4% on the dollar last month, for its biggest monthly rise since December 2008. The euro powered ahead to close out September, as traders shrugged off a cut in Spain’s credit rating and Ireland’s increased estimate of the cost of bailing out its financial sector.
On Friday, the euro shrugged off data confirming a slowdown in the pace of manufacturing growth and a euro-zone unemployment rate that remained elevated at 10.1% in August.
Quantitative easing is a form of monetary policy used by central banks that centers on increasing the money supply by creating new reserves that are typically used to buy government bonds and other assets.
Kit Juckes, chief foreign-exchange strategist at Societe Generale, argued that it’s overly simple to say the euro is benefiting solely from expectations that the Fed, the Bank of England and the Bank of Japan are likely to engage in more quantitative easing while the European Central Bank is less inclined to do so.
The currencies market “still seems hell-bent on ignoring the sovereign credit crisis within the euro zone,” Juckes wrote in a research note.
“The euro isn’t really bullet-proof in the long term,” he said, explaining that the currency’s recent strength appears tied to perceptions that “the Japanese look set to join in” on quantitative easing.
Stronger-than-expected purchasing managers data from China also weighed on the dollar, analysts said.
Traders will turn their focus to the release of the Institute for Supply Management’s U.S. September manufacturing index at 10 a.m. Eastern. Economists surveyed by MarketWatch expect the index to fall to 54.0% from a reading of 56.3% in August.
The dollar (USDYEN 83.2300, -0.2600, -0.3114%) also fell to 83.17 Japanese yen, down from ¥83.53 late Thursday. The greenback’s given back much of the temporary jump above ¥85 last week, when Japanese authorities sold ¥2.125 trillion ($25.5 billion) in an effort to weaken the yen.
The British pound (GBPUSD 1.5828, +0.0121, +0.7704%) rose 0.7% on the broadly weaker dollar to trade at $1.5827. The euro edged up 0.1% versus sterling to change hands at 86.71 pence.
The CIPS/Markit purchasing managers index released Friday showed manufacturing activity in Britain grew at its slowest pace in 10 months. Read about U.K. manufacturing PMI.
