U.S. dollar continues rally against euro, amid possible rate hike delay

Investing.com –

Investing.com — The U.S. dollar rallied by more than 1% against the euro on Tuesday, amid weaker than expected services data in the euro zone and expectations for a delayed interest rate hike by the Federal Reserve.

EUR/USD fell 0.0116 or 1.06% in U.S. afternoon trading to 1.0807, moving steadily lower from a daily-high of 1.0956 in European morning trading. European markets reopened on Tuesday after a four-day weekend for the Easter holiday.

The pair likely gained support at a low of 1.05 from March 11 and resistance at 1.11, the high from Mar. 4. On Monday, EUR/USD moved above 1.10 for the first time since Mar. 25, before falling back to 1.094.

While the Markit Eurozone Services Business Activity Index increased from 53.7 in February to 54.2 in March, expansion in output still fell below previous estimates of a 54.3 reading. Increases in Germany, Italy and Spain accelerated growth while the United Kingdom’s service-sector PMI peaked at 58.9, to reach a multi-month high.

Price discounting throughout the euro zone drove growth on the continent.

“The PMIs are indicating somewhat sluggish GDP growth of 0.3% for the first quarter.,” said Chris Williamson, Chief Economist at Markit. “However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months.

Meanwhile, in the U.S. Federal Reserve Bank of Minneapolis president Narayana Kocherlakota said at a speech on Tuesday that the Fed may not need to raise its benchmark Federal Funds Rate until the second half of 2016.

“In light of the outlook for unduly low employment and unduly low inflation, the Fed can be both late and slow in reducing the level of monetary accommodation,” Kocherlakota said in a speech to the Chamber of Commerce in Bismarck, N.D.

The comments came in light of a disappointing U.S. jobs report last Friday when the U.S. Bureau of Labor Statistics said in its monthly jobs report that the economy added 126,000 in March, halting a streak of 12 consecutive months of job growth that exceeded 200,000. The modest job increases nationwide marked the weakest period of hiring in 15 months. In terms of average weekly earnings, employees nationwide received the smallest annual gains in wages since last June.

The labor force participation rate, which measures the number of people who are either employed or actively looking for work, also painted a bleak outlook. During the month of March, the rate ticked down to 62.7%, the lowest level in 36 years.

In mid-March, Federal Reserve chair Janet Yellen indicated that the Fed could begin raising interest rates when it was “reasonably confident” that inflation will move toward its target inflation of 2%. Yellen added that the Fed will take a “data-driven” approach to potential liftoff by keeping a close eye on wage and GDP growth before raising rates.

Yields on the U.S. 2-year, meanwhile, have ticked up to 0.520, after reaching a two-month low at 0.47 late last week. At Tuesday’s 3-year note auction of U.S. Treasuries, yields stood at 0.865% with average demand of $ 24 billion. Many analysts believe the lower yields reduce the possibility that the Federal Reserve could increase rates by June.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, edged up on Tuesday by 0.95 points to 98.16

Investing.com
Investing.com offers an extensive set of professional tools for the financial markets.
Read more News on Investing.com and download the new Investing.com apps for Android and iOS!

Euro/Dollar Parity: What's Next?

View photo

.

Recently there has been a lot of speculation about whether or not the dollar and euro will trade equally in the coming months.

The divergence in policy between the U.S. Federal Reserve and the European Central Bank has contributed to the euro’s sharp decline and the dollar’s rally, but disappointing economic figures out of the U.S. caused many traders to step back and reevaluate whether or not parity is on the horizon.

Dollar Rally Nearing Its End?

In March, the Fed indicated that it was in no hurry to raise rates, causing many to revise their estimates for when the bank would increase its ultra low borrowing rate.

Additionally, the dollar has lost some of its momentum over the past week after economic data suggested that the US recovery may not be as rock-solid as initially believed.

A durable goods report showed that new orders fizzled in February, causing investors to further question whether or not the Fed would consider a rate hike any time soon.

Dollar Reserves Telling

With the euro trading at $ 1.0849 on Monday morning, all eyes are on the International Monetary Fund as it prepares to release its COFER for Currency Composition of Official Foreign Exchange Reserves on Tuesday.

The report will detail foreign exchange holdings for central banks around the world in the last quarter of 2014.

An increase in dollar reserves, which is what most expect to see, would likely drive the dollar higher and push the exchange rate closer to one to one ratio.

Related Link: Not All European Firms Are Profiting From A Weaker Euro

Predictions Divided

Analysts are divided as to whether or not the dollar will reach parity with the euro. HSBC predicted that the dollar rally was nearly over saying that the greenback has become severely overvalued.

Former IMF and Fed economist Stephen Jen is forecasting the opposite, saying that the two could reach parity by May or June.

Barclays is also betting on a one to one ratio this year, with their analysts expecting to see the euro dip below parity with the dollar in the third quarter of this year.

See more from Benzinga

euro currency coins

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

euro dollar currency trading

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

Surprise! Euro stages comeback vs. U.S. dollar

euro currency coins

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

euro dollar currency trading

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

Euro short sellers running for cover

euro currency coins

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

euro dollar currency trading

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

Surprise! Euro shows signs of life vs. U.S. dollar

The euro is making a comeback, surprising trash-talking traders who had been predicting it would soon hit parity with the U.S. dollar.

It traded as high as $ 1.10 Tuesday, bouncing back from a 12-year low of $ 1.05 last week.

The euro’s mini-surge is due almost entirely to Europe’s economy finding its heartbeat again after the eurozone barely dodged a recession last year.

“Signs of improvement in the European economy and the weight of money flooding into European equity markets … has triggered a savage correction,” explained strategist Kit Juckes from Societe Generale. “Many of the euro short-sellers are running for cover.”

Fresh data from Markit on Tuesday showed that business activity in the eurozone grew by the most in nearly four years in February. The euro moved higher immediately after the release.

Related: China’s factories slump amid growth concerns

Traders have been betting against the euro and buying the dollar for the last few months based on a combination of three factors that “are clear, and almost universally embraced,” according to Juckes.

1. Expectations for further improvement in the U.S. economy.

2. Expectations for an upcoming rate hike from the U.S. Federal Reserve.

3. Expectations that the European Central Bank’s money-printing program will severely devalue the euro.

But now expectations are shifting a bit — or, at least — hitting a pause.

Investors are widely forecasting that the Fed’s rate hike plans will move at a tortoise’s pace instead of hare-style speed, said Juckes. This is slowing the strong dollar rally.

Related: Europe is on sale for American travelers

Chief economist Simon Smith from FxPro also points out that foreign exchange traders are now coming to terms with the limitations of the ECB’s stimulus program, which is scheduled to wrap up at the end of September 2016.

“The initial euphoria surrounding [the ECB’s stimulus program] in the eurozone has died down,” he said.

Related: Japanese stocks are one fire

But don’t expect this euro rally to continue indefinitely. This should be viewed as a market correction.

Many expect the U.S. dollar and euro will eventually hit parity over the long run, possibly by the end of the year.

View this article on CNNMoney

More From CNNMoney.com

  • This is the U.S. dollar’s fastest rise in 40 years
  • Why gold could rebound to $ 1,400 an ounce
  • CNNMoney portfolio: One view of your stocks, funds & 401k

FOREX-Euro gains against dollar on robust PMI surveys

* Robust French, German PMIs help euro

* Fed’s Williams repeats mid-year rate rise may be appropriate

* Dollar still feeling impact of last week’s dovish Fed statement

* Aussie slips briefly after weak China flash HSBC PMI

By Ahmed Aboulenein

LONDON, March 24 (Reuters) – The euro rose for the third day running against the dollar on Tuesday, bolstered by better-than-expected euro zone business surveys that pointed to a broader recovery taking place in the currency bloc.

The dollar was under pressure, with investors awaiting consumer price inflation data later in the day. A softer number, as was registered earlier on Tuesday in Britain, could boost expectations that the Federal Reserve will be in no hurry to raise interest rates.

San Francisco Fed chief John Williams weighed in on the debate over the dollar’s gains, saying the U.S. economy could handle a stronger currency and pointing to the chance of an interest rate rise in June.

Other Federal Reserve officials, and new forecasts from the U.S. central bank, have cast doubt on how much more appreciation of the dollar the Fed will easily tolerate and raised speculation it will push back any tightening of monetary policy.

The euro was up 0.4 percent at $ 1.0984, having risen to $ 1.10 after the business surveys were released. In a sign the European Central Bank’s bond buying programme may already be paying dividends, the composite purchasing managers’ survey for the 19 members of the euro zone jumped to a near four-year high of 54.1 in March, well above forecasts.

“Any positive surprises from the euro area are further adding to this euro/dollar rally. However, we think this is temporary; we still believe in the dollar strength trend going into the second half of the year,” said Nikolaos Sgouropoulos, FX strategist at Barclays in London.

Many major bank strategists forecast the euro to fall close to parity with the dollar this year, but the pace of its dive to $ 1.05 earlier this month took many by surprise and prompted JP Morgan and HSBC to suggest the rally may be coming to an end.

“The bigger question of whether the economic recovery has any legs remains unanswered,” Societe Generale analysts said in a note.

“In the meantime, after breaking above key resistance at $ 1.0940 yesterday, the euro’s next technical target is $ 1.1070 and we’d be more interested in re-selling there than in looking for much follow-though from this morning’s initial weakness.”

The Swiss franc, meanwhile, rose to a three-week high against the dollar and a six-week peak versus the euro .

Against the yen, the dollar eased 0.3 percent to about 119.40 yen, near the bottom of its 122.04 yen to 119.29 yen range seen over the past couple of weeks.

(editing by John Stonestreet)

GLOBAL MARKETS-Strong euro zone business growth pushes euro to $1.10

* Better-than-expected European PMIs boost euro, hurt dollar

* Gauge shows China factory activity skids to 11-month low

* Cautious Fed view on rate hike keeps dollar off recent highs

By Jemima Kelly

LONDON, March 24 (Reuters) – The euro rose and European shares steadied on Tuesday, responding to signs the euro zone economy is gaining momentum, while a slowdown in factory activity in China kept oil and commodities-linked assets under pressure.

U.S. stock index futures edged higher ahead of a data deluge including measures on inflation, home prices and sales, and factory activity, starting at 1230 GMT.

In an indication that the European Central Bank’s 1 trillion euro bond-buying programme may already be having a positive impact, a composite purchasing managers’ survey for the 19 members of the euro zone jumped to a near four-year high of 54.1 in March, well above forecasts.

The euro gained 0.4 percent in European trading to hit a six-day high of $ 1.1003, adding to a recent rally after the single currency last week registered its best performance against the dollar in 3-1/2 years.

“Any positive surprises from the euro area are further adding to this euro/dollar rally, however we think this is temporary,” said Nikolaos Sgouropoulos, FX strategist at Barclays in London. “We still believe in the dollar strength trend going into the second half of the year.”

The dollar plunged last week after the U.S. Federal Reserve cut its inflation outlook and its growth forecast and the market pushed out its consensus of when the Fed will raise rates to at least September.

On Tuesday the dollar was down 0.3 percent against a basket of major currencies at 96.759, well below its 12-year peak of 100.390 struck on March 13.

San Francisco Federal Reserve Bank President John Williams said on Tuesday the strong dollar would drag on U.S. growth this year, though the economy was strong enough to handle it.

At 1150 GMT, the FTSEurofirst 300 index of top European shares had steadied near a recent 7-1/2-year high at 1,600.76 points after falling earlier in the session on the Chinese data.

CHINA GROWTH WORRIES

Brent crude fell under $ 56 a barrel on the signs of slowing growth in China and as Saudi Arabia said its production was close to an all-time high.

The China flash HSBC/Markit Purchasing Managers’ Index (PMI) dipped to 49.2 in March, below the 50-point level that separates expansion from contraction. Economists polled by Reuters had forecast a reading of 50.6, slightly weaker than February’s final PMI of 50.7.

The private survey is likely to add to calls for more monetary easing from Beijing.

“China is the big risk,” said Ian Stannard, head of European FX strategy at Morgan Stanley in London. “It can put the whole of Asia ex-Japan under pressure and there is some feed-through to G10 through the commodity currencies.”

The Shanghai Composite share index ended slightly higher, gaining for a 10th straight day in a rally that has pushed major Chinese indexes to their highest levels in nearly seven years.

Japan’s Nikkei stock average slipped 0.2 percent, pulling away from the previous session’s 15-year highs.

In Japan, a similar manufacturing survey added to concerns that its slowly recovering economy may also be losing momentum, with activity expanding at a much slower clip as domestic orders contracted.

Spain’s bond yields lagged a broad rally in euro zone bonds as investors queued up for a rare sale of inflation-linked debt. Yields on the country’s 10-year bonds were up 1 basis point at 1.27 percent, while most other equivalents in the euro zone were 1-2 basis points lower.

(Additional reporting by Ahmed Aboulenein, Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Mark Trevelyan)

FOREX-Dollar rally stalls, euro climbs from fresh 12-year low

(Adds BOE’s Carney, fresh prices)

* Euro rises 0.7 pct after hitting 12-year low vs dollar

* U.S. retail sales disappoint, compound dollar weakness

* Kiwi up more than 1.6 pct versus U.S. dollar

By Daniel Bases

NEW YORK, March 12 (Reuters) – The dollar fell against the euro on Thursday as investors took profits after a powerful rally brought the greenback to a 12-year high in early trade, then surprisingly weak U.S. February retail sales stoked the sell-off.

The euro remained down 12 percent year-to-date, careening toward parity with the dollar as monetary policies ease in Europe and elsewhere at a time of stronger U.S. economic growth and expectations the Federal Reserve will start raising interest rates this year.

The dollar weakened after the U.S. Commerce Department reported a surprising 0.6 percent drop in retail sales in February as harsh winter weather dented sales that were expected to rise 0.3 percent.

“I think we’re finally seeing some early signs of fatigue in the dollar’s rally,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

“Caution is on the rise ahead of next week’s Fed meeting. On the one hand, steady job growth has many expecting the Fed to lay the ground work for an eventual rate hike. But this rapid rise in the dollar could warrant a warning from the Fed as a potential threat to growth,” he said.

The euro rose 0.71 percent to $ 1.06220 on the EBS trading platform, recovering from a session low of $ 1.0494, its weakest since January 2003.

The European Central Bank launched a 1.1 trillion euro bond-buying program this week, denting the euro’s appeal by driving yields of many euro zone bonds to all-time lows.

A 10-year German bond yields 0.25 percent versus 2.10 percent on a benchmark 10-year U.S. Treasury.

The euro rose 0.60 percent to 128.86 yen while the dollar fell 0.10 percent to 121.335 yen.

“Unless we get protests from other trading partners about a weakening euro, I think the trend will continue. There have been some noises from the U.S. but as long as the Europeans are happy with the currency weakness, the euro can go down further,” said Yujiro Goto, currency analyst at Nomura.

Sterling fell 0.50 percent to a 20-month low of $ 1.4850 . Bank of England Governor Mark Carney signaled he was in no rush to raise interest rates, disappointing some who expected a rate hike in early 2016.

New Zealand’s dollar gained 1.3 percent against the U.S. dollar after the Reserve Bank of New Zealand sounded less dovish than markets had expected and kept rates steady at 3.5 percent.

(Additional reporting by Jemima Kelly, Anirban Nag and Ahmed Aboulenein in London; Reporting By Daniel Bases; Editing by Meredith Mazzilli and David Gregorio)

Euro zone bond yields fall on QE launch, Greece jitters resurface

(Corrects ECB monthly purchase amount to 60 billion euros)

By John Geddie

LONDON, March 9 (Reuters) – Most euro zone government bond yields fell on the first day of the European Central Bank’s sovereign debt purchase programme, with only fears about Greece’s funding spoiling Monday’s launch party.

German 10-year bond yields — the bloc’s benchmark — fell 4 basis points to 0.36 percent, clawing back ground lost on Friday after strong U.S. jobs data raised the chance of an interest rate hike in the world’s biggest economy.

Other euro zone equivalents opened around 2-5 bps lower, except for Greek 10-year paper which rose on concerns the European Union might reject reform proposals vital to unlocking new bailout cash for Athens.

“Markets will open a new chapter today,” said Commerzbank strategist David Schnautz.

Euro zone finance ministers are meeting on Monday in Brussels to discuss a letter of pledged reforms sent by Athens last week.

The chair of the meeting, Jeroen Dijsselbloem, said on Sunday that the Greek proposal was not enough to unlock further aid. Time is pressing because Greece is expected to run out of cash later this month.

Should Brussels ultimately reject Greece’s proposals, the country could call a referendum or have early elections, its finance minister said on Sunday.

Greek 10-year yields opened 8 bps higher at 9.58 percent .

This nervousness also saw lower-rated debt in the euro zone, which is expected to have the most potential to perform under quantitative easing, slightly lag the rally seen in German and other top-rated bonds.

Italian and Spanish 10-year yields dipped 2 bps to 1.30 and 1.22 percent, respectively.

After months of speculation, investor attention is now fixed on how the ECB’s programme will work in practice.

While analysts expect a smooth start for the programme as overseas holders of euro zone debt swap bonds for higher-yielding U.S. or emerging markets debt, questions remain over how willing domestic investors will be to sell.

In Italy, for instance, 70 percent of bonds are held domestically, according to RBS research.

“Domestic investors are not likely (to sell) … either because of tax treatment, preferred habitat and lack of alternatives — unless new regulatory measures incentivise banks to liquidate (large) holdings,” RBS analysts wrote.

With ECB chief Mario Draghi dismissing concerns last week that the ECB may struggle to implement its 60 billion euros a month QE programme, many think the rally in euro zone government bonds may have much further to go.

(Editing by Catherine Evans)