Sterling hits highest level versus euro since June 2010
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch)—The dollar rose against most major currencies on Wednesday, with the euro stumbling after data indicated a deepening downturn for the euro-zone manufacturing sector and record-high unemployment in the region.
The dollar index DXY +0.45% , which measures the greenback against a basket of six major currencies, rose to 79.295, up from 78.829 in late North American trading on Tuesday.
The euro EURUSD -0.01% declined to $1.3134, down from $1.3239.
The euro EURGBP -.00% lost 0.5% versus the British pound to 81.24 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 hit its highest level since the introduction of the shared currency: 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.
The data may give the European Central Bank more room to maneuver to support growth. For some time, it’s been a concern that Europe is having a “two speed” economy -- with Germany doing just fine, hindering the ECB from easing, said Kathleen Brooks, research director at Forex.com
“If Germany is showing signs of weakness, then the ECB would have more room to further stimulate the economy, maybe by cutting the 1% interest rate even further, which would be a welcome relief for countries like Spain,” she said. “This makes tomorrow’s ECB meeting even more important than usual for the markets as we gauge how the ECB views the recent broad-based weakness in the currency bloc.”
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.”
The dollar remained up after ADP said U.S. private employers added 119,000 jobs in April, fewer than many analysts expected. The report comes two days before the more closely watched U.S. nonfarm jobs statistics. Read story on ADP.
The British pound GBPUSD -0.01% fell to $1.6168, down from $1.6225 on Tuesday.
The Australian dollar AUDUSD -0.02% slipped to $1.0308, compared with $1.0335 Tuesday.
The Australian dollar fell 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 ÂĄ80.18, rising from ÂĄ80.20 late Tuesday and from ÂĄ79.82 Monday.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Sarah Turner in Sydney contributed to this report.
