Bloomberg News

Euro Rises Versus Dollar as Manufacturing Survey Beats Estimates

February 02, 2012

Feb. 1 (Bloomberg) -- The euro rose against the dollar for the first time in three days as a purchasing managers’ index of manufacturing output in the region beat analysts’ estimates, adding to signs Europe’s economy is stabilizing.

The greenback fell versus 14 of its 16 major peers after manufacturing in China and the U.K. also rose, damping demand for safer assets. The yen appreciated for a fifth day against its U.S. counterpart, adding to speculation Japan’s central bank may sell the currency to stem its appreciation. The euro also gained on speculation Greek bondholders may get a sweetener tied to a revival in economic growth to ease the impact of accepting lower interest rates on new bonds.

“The Chinese PMI came in well, the European PMI came in better than expected and so did the U.K. PMI -- all that created a very positive environment for risk,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “We’re getting more unsubstantiated rumors that the Greek deal is just about done. That would be icing on the cake to make sure the risk rally continues.”

The 17-nation currency climbed 0.8 percent to $1.3182 at 8:54 a.m. New York time. The euro rose 0.6 percent to 100.33 yen, and the dollar weakened 0.2 percent to 76.11 yen, after reaching 76.03 yen, the least since Oct. 31.

The Stoxx Europe 600 Index of shares gained 1.4 percent while futures on the Standard & Poor’s 500 Index advanced 0.7 percent.

German Output

The euro reversed an earlier decline after Markit Economics said its manufacturing gauge based on a survey of purchasing managers in the euro region rose to 48.8 in January from 46.9 in December. That compares to a median estimate of 48.7 in a Bloomberg survey of economists.

In Germany, the output gauge reached the highest in six months, while Austria also reported an expansion, Markit said.

The official Chinese purchasing managers’ index increased to 50.5 from 50.3 in December, though the data may have been distorted by a weeklong holiday. A separate gauge from HSBC Holdings Plc and Markit rose to 48.8.

In the U.K., manufacturing returned to growth in January after shrinking in the previous three months, a report showed.

The pound added 0.5 percent to $1.5845.

“The surprisingly good manufacturing PMI surveys out of Europe are helping risk sentiment and the euro,” said Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva. “Expectations are everything in this environment so any upside surprise is going to have a bigger impact.”

Jobs Report

U.S. manufacturing probably grew at a faster pace in January, a sign the industry will lead the U.S. expansion early this year, economists said before a report today.

Companies in the U.S. added 170,000 workers in January, reflecting job gains in services and at small businesses, according to a private report based on payrolls.

The increase was less than forecast and followed a revised 292,000 rise the prior month that was smaller than previously reported, the report from the Roseland, New Jersey-based ADP Employer Services showed today. The median estimate in a Bloomberg News survey of economists called for an advance of 182,000.

The euro appreciated 1 percent against the dollar last month as Italian and Spanish bonds outperformed their German counterparts amid speculation policy makers are bringing the region’s debt crisis under control. European economic confidence increased in January and German unemployment dropped more than economists estimated from the previous month.

Greece Talks

In discussions late last week in Athens, bondholders negotiating a debt swap with Greece lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time.

The yen and the dollar are the best performers among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes in the past six months after the euro area’s debt crisis increased demand for safer assets. The yen gained 6.3 percent in the period and the dollar advanced 6.2 percent, while the euro weakened 2.1 percent.

Japan may act if the yen approaches a record against the dollar, according to Naohiko Baba, Goldman Sachs Group Inc.’s chief economist in Tokyo. The authorities may attempt large- scale intervention and continue so-called stealth operations for several days, he wrote in a note today.

Swiss Franc

The nation refrained from selling yen in the market last month, the Ministry of Finance said yesterday on its website. Japan sold the currency on Oct. 31 when it climbed to a postwar record of 75.35 per dollar, hurting the overseas competitiveness of exporters and cutting the value of their repatriated income.

Switzerland’s franc climbed to a four-month high against the euro, approaching the Swiss National Bank’s ceiling.

The franc was little changed at 1.20476 per euro after earlier appreciating to 1.20319, the strongest since Sept. 19, two weeks after the SNB imposed a 1.20 cap on the currency.

The cost to protect against a drop in the euro against the franc has increased for the past four days. Risk-reversal rates for one-month options on the currency pair had a 1.44 percentage-point premium for contracts that grant the right to sell the euro over those allowing for purchases, the most since Sept. 20.

‘Rising Premium’

The risk-reversal rate “continues to reflect a rising premium for puts over calls, seemingly indicating a looming test of wills,” Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, wrote in a note to clients.

A call option grants the buyer the right, but not the obligation, to purchase a security, while put options confer the right to sell.

The Norwegian krone advanced against the euro after Norway’s manufacturing expanded in January for the first time since October. The krone strengthened 0.3 percent to 7.6480 per euro as the Fokus Bank index rose to 54.9 from 46.6 in December. It was forecast to rise to 48, according to a Bloomberg survey of analysts. A reading above 50 signals an expansion.

South Korea’s won dropped against all its major counterparts as exports dropped for the first time in two years and inflation decelerated. Consumer prices rose 3.4 percent in January from a year earlier, compared with 4.2 percent the month before. Exports shrank 6.6 percent, the first decline since October 2009.

The won declined 0.3 percent to 1,126.35 per dollar.

--With assistance from Kristine Aquino and Masaki Kondo in Singapore and Mariko Ishikawa in Tokyo. Editors: Kenneth Pringle, Greg Storey

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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