Euro hits one-week high on upbeat growth data

NEW YORK • The euro climbed to a one-week high against the US dollar on Tuesday after first-quarter economic growth figures in the euro zone beat market expectations, dispelling some pessimism over the economic bloc's common currency.

Mixed US data and caution ahead of a two-day Federal Reserve meeting pushed the dollar further away from a near two-year high.

Euro zone economic growth accelerated to 0.4 per cent in the first three months of this year, recovering from a slump in the second half of last year, data showed on Tuesday.

The stronger-than-forecast data offset a disappointing manufacturing Purchasing Managers' Index (PMI) survey last month and cautious comments from European Central Bank policymakers which raised concerns that the broader economy is struggling to gain traction.

"The (overall) data has been coming in better than expected. The euro is the biggest short in the market right now," said Mr Steven Englander, global head of G10 FX research at Standard Chartered Bank in New York.

Higher-than-expected growth figures could squeeze some hedge funds, which have been amassing large short positions in the euro worth a net US$14.8 billion (S$20 billion) in the week to April 23.

The currency ended up 0.01 per cent last month, shaving its year-to-date loss against the greenback to 2.17 per cent.

An index that tracks the US dollar against the euro, yen, sterling and three other currencies was down 0.38 per cent at 97.489, paring its monthly gain to 0.2 per cent. It hit a 23-month high at 98.330 last Friday.

"We feel the dollar-buying move was a bit overdone," Mr Englander said.

Earlier on Tuesday, data showed US labour costs grew 0.7 per cent in the first quarter, reinforcing the notion that wage pressure would stay tame even though hiring has been strong, the Labour Department said.

Moreover, US Midwest factory activity unexpectedly fell last month to its weakest since January 2017, according to an index from MNI and the Institute for Supply Management-Chicago.

Analysts expect no policy changes from the Fed's two-day policy meeting, which was to end yesterday, but investors want to hear how Fed chairman Jerome Powell resolves the divergence between solid economic growth and slowing inflation.

Trading volume was muted by Japanese markets being closed for the Golden Week holiday.

Activity was likely to drop off further yesterday, with China and much of Europe closed for the May Day holiday.

The Japanese yen rallied to a three-week high after China's official PMI dipped to 50.1 last month. It was up 0.26 per cent at 111.355 yen per US dollar, reducing its month-to-date loss to 0.483 per cent.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 02, 2019, with the headline 'Euro hits one-week high on upbeat growth data'. Print Edition | Subscribe