Euro bounces from 11-month low
New York - The euro bounced from an 11-month low against the dollar on Thursday as a successful Spanish debt auction and strong U.S. data whetted risk appetite, a trend some say may prove fleeting.
The euro jumped to a global session high of $1.3049 after data showed new applications for U.S. unemployment insurance fell to a 3-1/2 year low, suggesting the job market’s recovery was gaining speed. Solid U.S. manufacturing data and a rise in factory activity in the Mid-Atlantic to its highest since April increased investors’ appetite for riskier assets.
The deluge of U.S. data offered further proof of increased momentum in the pace of economic activity and provided a stark contrast to Europe, where the festering debt crisis has already pushed some economies into recession.
Indeed, while flash euro-zone PMI surveys on Thursday showed the decline in the private sector eased a little this month, a recession still looks inevitable with the region’s periphery struggling badly.
The common currency drew some comfort from a successful Spanish bond auction . The Spanish sale came a day after another auction where Italy had to pay a hefty 6.47 percent to borrow over the same period.
Generally quiet markets gave investors an excuse to book some profits on the single currency’s drop of about 3 percent against the greenback this week, according to Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
“While additional near-term upside for the euro is likely to result from continued profit taking and positioning, its medium-term downtrend remains firmly intact,” he said. “Euro losses are likely to accelerate in the event of a mass downgrade of euro- zone states by credit rating agencies, a scenario that looks increasingly likely, given the lack of progress at last week’s EU summit.”
The euro was last up 0.2 percent against the dollar at $1.3008, taking a breather from a massive sell-off earlier this week that saw it drop to $1.2945 on Wednesday, the lowest level since Jan. 11, on trading platform EBS. The next major support is at the year’s low, $1.2860, hit on Jan. 10.
The single currency, meanwhile , fell against the Swiss franc after the Swiss National Bank kept its floor on the euro/franc exchange rate unchanged at 1.20 francs. That disappointed some investors who had built long euro positions on expectations that the SNB would lift the floor to fight deflation in Switzerland.
The euro last traded down 0.9 percent at 1.2264 Swiss francs while the dollar traded 1.2 percent lower against the franc at 0.9414 francs.
The single currency has lost about 3 percent against the dollar this week after last Friday’s European Union summit, seen as crucial to reining in the debt crisis, failed to come up with near-term solutions to restore investor confidence.
“Overall, the outlook for the euro remains dark, with the unraveling of the treaty last week, refusal to lend to the IMF and the overall downside risks to global growth,” said Paul Robson, currency strategist at RBS Global Banking. “We expect the euro to fall to $1.26 by the end of Q1 next year.”
The euro’s weakness, plus sharp drops in the prices of commodities such as gold and persistent strains in dollar funding markets, have helped lift the dollar index close to its 2011 high. The index was last down 0.2 percent at 80.416 as investors booked profits on long dollar positions.
The euro remains highly vulnerable as the risk of sovereign downgrades also looms large for the region and investors fear some member states may develop cold feet with regard to the proposals on tighter fiscal rules that were the centerpiece of last week’s summit.
Against the yen, the dollar, meanwhile, eased 0.3 percent to 77.84 yen.