Euro Rises From 6-Week Low as Manufacturing Grows; Aussie Gains

The euro strengthened from a six-week low against the dollar after a report showed manufacturing in the currency bloc expanded for a fourth month in October.

The 17-nation currency advanced for the first time in three days versus the yen amid speculation the European Central Bank will refrain from cutting interest rates this week, and after data showed manufacturing activities in the region improved. Australia’s dollar rose against all of its 16 most-traded peers after retail sales increased before the Reserve Bank reviews borrowing costs tomorrow. The pound climbed from a two-week low versus the dollar after U.K. construction output expanded.

“We saw some encouraging data on manufacturing in euro zone -- that provided short-covering opportunities for investors,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “There’s a growing minority expectation that we could see a cut this week. But even if we don’t, it looks like there’ll a big chance of monetary easing in the not-very-distant future.” A short position is a bet an asset is going to decline in value.

The euro rose 0.2 percent to $1.3514 at 5 p.m. New York time after falling to $1.3442, the weakest level since Sept. 18. The common currency gained 0.1 percent to 133.25 yen after sliding 1.7 percent during the previous two days. The dollar slipped 0.1 percent to 98.60 yen.

Aussie Rebounds

The Australian dollar gained for the first time in three days after the Bureau of Statistics said retail sales rose 0.8 percent in September, compared with the median forecast of 0.4 percent in a Bloomberg survey.

“From an interest-rate perspective domestically, there’s a growing view that we have hit the bottom,” said Hans Kunnen, a senior economist at St. George Bank Ltd. in Sydney. “We think the Aussie remains at these levels unless expectations somewhere are totally knocked off the track.”

Australia’s dollar jumped 0.8 percent to 95.10 U.S. cents after falling to 94.22 cents on Nov. 1, the weakest level since Oct. 14.

The pound strengthened against most major peers after Markit Economics said its index of U.K. construction activity expanded at the fastest pace in six years.

“The data is suggesting that the economy is about as good as it can get,” said Gavin Friend, a currency strategist at National Australia Bank Ltd. in London. “We should see a renewed downward focus on the euro against sterling because people are starting to think about the growth divergence.”

The pound rose 0.3 percent to $1.5968 after falling to $1.5904, the lowest level since Oct. 16. The U.K. currency traded at 84.63 pence per euro.

‘Slightly Stronger’

An index of euro-area manufacturing based on a survey of purchasing managers was at 51.3 last month, matching the preliminary number and up from 51.1 in September, London-based Markit Economics said. A level above 50 signals expansion. The euro slumped last week after a report showed the annual inflation rate fell to the least since November 2009.

“The issue this week is there might not be much coming out of the ECB meeting,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “If the ECB doesn’t cut rates, there might be some rebound in euro-dollar, although we think it’s going to be temporary.”

The euro will fall to $1.32 by year-end as the central bank will lower the benchmark rate in December, Serebriakov said.

ECB Watching

Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG all forecast the ECB will cut its main refinancing rate this week, according to a Bloomberg News survey of 68 economists. The remainder predict no change. The ECB last lowered its benchmark in May to a record 0.5 percent.

“We need to see the outcome of the ECB meeting before calling euro performance into year-end,” Morgan Stanley strategists led by head of global currency strategy Hans Redeker in London, wrote in a note to clients. “While any rate cut would likely have an immediate negative impact on the euro, the longer-term impact could be milder.”

The common currency fell below its 50-day moving average at $1.3489 before crossing back above it, data compiled by Bloomberg show. Its seven-day relative strength index was at 28.6 today after touching 22 on Nov. 1, below the 30 threshold which indicates the currency’s decline may be losing momentum.

Options Trading

Volume in over-the-counter foreign-exchange options on the euro-dollar exchange rate amounted to $10 billion today, the largest share of currency trades at 29 percent, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. The total was 148 percent more than the average trading for the pair for the past five Mondays at a similar time.

Options on the dollar-yen rate totaled $6.6 billion, or 19 percent of the total, with trading in the pair 8 percent below average. Total options trading was $35 billion today, from $39 billion on Nov. 1.

JPMorgan Chase & Co.’s Global FX Volatility Index, which monitors price swings among currencies, was at 8.14 percent after reaching 8.28 percent, the highest in almost four weeks. The gauge fell to 7.55 percent on Oct. 28, the lowest since Jan. 9.

The euro rose 5.7 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes The dollar strengthened 2.9 percent and the yen slumped 11 percent.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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