November 22, 2012 12:01 pm

Euro shrugs off weak economic data

The euro shrugged off poor eurozone data on Thursday and pushed upwards to hit a three-week high as appetite for risk improved.

The single currency once again proved its resilience and gained 0.4 per cent against the dollar, rising as high as $1.29. It was also up 0.5 per cent against sterling to £0.8079 even as flash purchasing manager index data for the eurozone confirmed that the area’s recession had probably worsened this quarter.

Ben May, European economist at Capital Economics, said the “increase in the headline composite index from 45.7 to 45.8 was broadly in line with the consensus expectation, but it only partially reversed the previous month’s fall and left the index below its third-quarter average”.

Mr May said on past form, the data point to quarterly falls in gross domestic product of about 0.4 per cent – bigger than the 0.1 per cent drop seen in the third quarter.

However, as JPMorgan’s Greg Fuzesi noted, key manufacturing details were constructive enough to suggest that some improvement is starting to take place.

The single currency has now gained 1.1 per cent since the start of the week when it sat at $1.2736 and, along with other risk-on currencies, was supported on Thursday by Chinese PMI data.

The flash estimate showed that the indicator surged 3.1 points to 51.3 and hit a 13-month high. Société Générale’s Klaus Baader said: “Arguably the most remarkable improvement was in the new export orders index, which jumped 5.7 points to 52.4, which in turn was the highest reading in exactly two years.”

A ceasefire between Hamas and Israel, which appeared to hold overnight, and hopes that the eurozone can reach an agreement on Monday that will release bailout funds to Greece helped lift sentiment.

The dollar index fell 0.3 per cent to 80.7 points, to remain just above its 200-day moving average. However, it should be noted that the Thanksgiving holiday in the US removed some liquidity from the market.

The yen stabilised somewhat, trading flat against the dollar at Y82.51, but remains down 3.8 per cent against the greenback since the announcement last week of early Japanese elections, to be held on December 16.

Shinzo Abe, head of the opposition Liberal Democratic party and opinion poll favourite to be the next prime minister, has called for the Bank of Japan to take powerful easing measures to counter deflation, criticising recent moves by the BoJ as “meaningless”.

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