LONDON—The euro rose in European trading Monday as the U.S. debt deal struck overnight gave investors a much-needed confidence boost, but lingering uncertainties kept the gains in check, sustaining demand for safe-haven currencies like the Swiss franc and yen.
Although U.S. political leaders thrashed out a deal over the weekend, this still has to be passed by both the Senate and the House of Representatives later Monday, with the latter expected to be tight. Currency traders are also worried that the deal might not be sufficient to placate the credit-rating firms.
"Investors are now looking forward to the vote by Congress and there are still concerns that the plan is not quite large enough to avoid a [credit rating] downgrade," said Michael Sneyd, currency strategist at Société Générale. In his view, the most likely outcome is that the U.S. will be maintained on negative watch and will avoid being downgraded over the summer.
The overall optimistic tone and reported buying by Asian central banks in thin dealing conditions helped the euro climb above $1.4450 against the dollar in spite of some soggy survey data.
The euro traded recently at $1.4444, compared with $1.4396 late Friday in New York. The dollar was at ¥77.18 against the yen, compared with ¥76.78, while the euro was at ¥111.48 compared with ¥110.05. Meanwhile, the pound was trading at $1.6438 from $1.6414 late Friday in New York. The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 73.605 compared with 73.750 late Friday in New York.
Manufacturing purchasing managers' indexes across Europe suggested the euro-zone economy got off to a weak start in the third quarter. The data showed that activity at euro-zone factories slowed to a near standstill in July, with even Germany recording slower growth than expected.
The economic situation looked worse in the U.K., however. The PMI showed that U.K. manufacturing activity unexpectedly contracted last month for the first time in two years. That saw sterling fall more than half a cent against the dollar to dip briefly below $1.64 and the euro climb to £0.8795 against the pound. But the weaker dollar helped sterling to rebound.
The pound has benefited in recent weeks from the market's focus on euro-zone and U.S. fiscal concerns but with a semblance of resolution to both crises, sterling may start to underperform, some strategists say.
The Turkish lira strengthened against the dollar, helping the currency make back all of Friday's losses following the surprise resignations of four top armed forces' commanders.
In the session ahead, U.S. ISM manufacturing at 10 a.m. ET is expected to show a slowdown in the pace of growth in July, with economists expecting a reading of 54.6 compared with June's 55.3.
Ahead of the Reserve Bank of Australia's policy decision at 12:30 a.m. Tuesday, the Australian dollar drifted sideways around $1.1050 to the U.S. dollar.
