Euro climbs to more than 2-month high vs dollar
NEW YORK: The euro rose on Tuesday to its highest level against the dollar in more than two months after solid euro zone economic data , though the rally could start to fade given lingering worries over the region's debt problems.
Easing concern over political unrest in Egypt also helped boost the euro zone single currency. Analysts cautioned, however, that it's premature to conclude that the global fallout would be contained.
The euro climbed above key resistance around $1.3740, the 38.2 percent Fibonacci retracement of its November-January fall. Traders said the move opened the way to a run toward $1.40, a level that likely will attract selling interest.
"To me euro anywhere near $1.40 is probably a sell if we get up there," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto. "I still think there are some core fundamental issues in Europe that have not been addressed."
"When the whole world starts buying and talking about the strength of the euro, it's probably a good time to start fading it," he said.
The euro rose as high as $1.3776 on trading platform EBS, its strongest since late November, before edging back to $1.3759, up 0.5 percent on the day.
The Australian dollar rallied 1 percent on the day to a four-week high of $1.0086 after the country's central bank ended its monthly policy meeting with a generally upbeat assessment of the domestic and global economy.
Traders said demand from Middle Eastern investors helped lift the euro while Asian sovereigns were also seen buying back euro positions sold earlier in the day, as well as buying Australian dollars.
"Major currencies are ganging up on the dollar at the moment! . The eu ro, Aussie and sterling all have their own independent reasons for rising which are all anchored to signs of stronger growth," said Gavin Friend, currency strategist at nabCapital.
HAWKISH ECB Data on Tuesday showed a fall in Germany's jobless rate and strong final readings of purchasing managers' surveys, supporting the view the overall euro zone recovery is progressing.
In the wake of Monday's above-forecast euro zone inflation, the PMI surveys also showed rising price pressures, adding to expectations that European Central Bank President Jean-Claude Trichet will keep a hawkish tone on Thursday.
"Relative rate spreads are still favoring the euro to the dollar," said John Hydeskov, currency strategist at Danske.
Implied interest rate futures suggest a nearly 80 percent possibility the ECB will raise rates by 25 basis points in August from the current record low of 1.0 percent.
Investors now widely expect the Federal Reserve to lag far behind other central banks -- notably the European Central Bank and the Bank of England -- in raising interest rates.
Speculation that rates will rise faster in Europe than in the United States has kept the two-year yield spread between German and U.S. government bonds at around 80 basis points, its widest in two years.
The dollar slipped to a four-week low around 81.47 yen on EBS, while an index of the U.S. dollar against a basket of other currencies fell as low as 77.294, its weakest since early November.
Sterling jumped to a 2-1/2-month high of $1.6143 after UK manufacturing PMI hit a record high in January, boosting expectations for a UK rate rise by mid-year. It was last up 0.6 percent at $1.6102.
Easing concern over political unrest in Egypt also helped boost the euro zone single currency. Analysts cautioned, however, that it's premature to conclude that the global fallout would be contained.
The euro climbed above key resistance around $1.3740, the 38.2 percent Fibonacci retracement of its November-January fall. Traders said the move opened the way to a run toward $1.40, a level that likely will attract selling interest.
"To me euro anywhere near $1.40 is probably a sell if we get up there," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto. "I still think there are some core fundamental issues in Europe that have not been addressed."
"When the whole world starts buying and talking about the strength of the euro, it's probably a good time to start fading it," he said.
The euro rose as high as $1.3776 on trading platform EBS, its strongest since late November, before edging back to $1.3759, up 0.5 percent on the day.
The Australian dollar rallied 1 percent on the day to a four-week high of $1.0086 after the country's central bank ended its monthly policy meeting with a generally upbeat assessment of the domestic and global economy.
Traders said demand from Middle Eastern investors helped lift the euro while Asian sovereigns were also seen buying back euro positions sold earlier in the day, as well as buying Australian dollars.
"Major currencies are ganging up on the dollar at the moment! . The eu ro, Aussie and sterling all have their own independent reasons for rising which are all anchored to signs of stronger growth," said Gavin Friend, currency strategist at nabCapital.
HAWKISH ECB Data on Tuesday showed a fall in Germany's jobless rate and strong final readings of purchasing managers' surveys, supporting the view the overall euro zone recovery is progressing.
In the wake of Monday's above-forecast euro zone inflation, the PMI surveys also showed rising price pressures, adding to expectations that European Central Bank President Jean-Claude Trichet will keep a hawkish tone on Thursday.
"Relative rate spreads are still favoring the euro to the dollar," said John Hydeskov, currency strategist at Danske.
Implied interest rate futures suggest a nearly 80 percent possibility the ECB will raise rates by 25 basis points in August from the current record low of 1.0 percent.
Investors now widely expect the Federal Reserve to lag far behind other central banks -- notably the European Central Bank and the Bank of England -- in raising interest rates.
Speculation that rates will rise faster in Europe than in the United States has kept the two-year yield spread between German and U.S. government bonds at around 80 basis points, its widest in two years.
The dollar slipped to a four-week low around 81.47 yen on EBS, while an index of the U.S. dollar against a basket of other currencies fell as low as 77.294, its weakest since early November.
Sterling jumped to a 2-1/2-month high of $1.6143 after UK manufacturing PMI hit a record high in January, boosting expectations for a UK rate rise by mid-year. It was last up 0.6 percent at $1.6102.
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