Authors: Kevin Buckland and Alun John
TOKYO/LONDON (Reuters) – The euro rose on Thursday after data showed euro zone business activity rose at its fastest pace in a year this month, while the pound held steady near a two-month high against the dollar. unfazed by the UK election announcement.
The common European currency was last up 0.22% at $1.08450 after the preliminary composite Purchasing Managers’ Index for the currency bloc breached the 50 mark separating growth from contraction for a third straight month, with even the struggling manufacturing sector showing recovery .
“The dynamics in the manufacturing industry are consistent with the view that external demand is currently leading the positive dynamics in the euro zone,” said Mark Wall, chief European economist at Deutsche Bank, based on the data.
Better-than-feared economic data over the past few months helped fuel the euro’s rally in April and early May, and Thursday’s data pushed the currency back toward a two-month high of $1.0895 in mid-May.
Further support for the euro came from Wednesday’s data from the European Central Bank showing negotiated wage growth in the euro zone rose slightly in the first quarter of 2024, likely making policymakers cautious about the direction of the path taken after an almost certain rate cut next month.
The euro also rose 0.16% against the pound, rebounding from a three-month low hit in early trading.
The pound sterling held steady against the dollar at $1.2725 and remained unmoved after Prime Minister Rishi Sunak called a national election on Wednesday, which his Conservatives are widely expected to lose to the opposition Labor Party after 14 years in power. However, volatility in sterling options has increased over the July 4 election period. [GBP/]
“The market is quite confident that there will be a Labor government and is quite confident that a Labor government will not be very different in terms of fiscal policy from the current combination of Sunak and (Finance Minister Jeremy) Hunt,” said Jane Foley, head of foreign exchange strategy at Rabobank.
The pound hit a two-month high on Wednesday after persistent inflation in British services dashed expectations of a June rate cut by the Bank of England.
The dollar was slightly weaker against the Japanese currency at 156.64 yen, causing the index, which compares the unit to six major comparable currencies, to fall 0.15% to 104.7.
It marked a turnaround after the index posted its biggest daily percentage gain this month on Wednesday as minutes from the Fed’s latest meeting revealed a desire by some officials to raise interest rates.
PMI data also weighed on the yen after it showed factory operations in Japan were expanding for the first time in a year in May.
Japan’s corporate sector is grappling with a tender yen and almost half of Japanese companies believe a yen fall above 155 to the dollar is detrimental to their business, roughly twice the share of those who see currency weakness as a positive, Reuters poll showed on Thursday.
To counteract the yen’s decline, 37% of respondents wanted the central bank to raise interest rates again, and 34% wanted government intervention in the currency market.
The New Zealand dollar rose 0.47% to $0.6126 after data released on Thursday showed New Zealand retail sales volumes unexpectedly rose, a second day of gains after the Reserve Bank of New Zealand surprised markets on Wednesday , raising its forecast for maximum interest rates and pushing back when it expects cuts. {AUD/]
Among cryptocurrencies, ether rose 2% to $3,835, the highest since mid-March.
It is growing amid speculation about the potential approval of U.S. exchange-traded funds that would track the world’s second-largest cryptocurrency.
