Euro Rises Most in 4 Weeks on Manufacturing Increase

The euro advanced the most in almost four weeks against the dollar as a measure of manufacturing in the region rose to the highest in more than 2 1/2 years, boosting optimism that growth in Europe is gathering pace.

Argentina’s peso dropped the most in 12 years, leading a plunge in Latin American currencies, after the central bank scaled back its intervention to control the rate in a bid to preserve international reserves. The dollar snapped a seven-day rally as a gauge of the national economy came in below forecast. South Africa’s rand fell to a five-year low against the dollar.

“The better-than-expected euro zone purchasing managers’ index figures were the initial trigger for the euro rally,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “Emerging-market currencies also fell very hard, and there was a feeling of risk aversion in the market.”

The euro rose 1.1 percent to $1.3696 at 5 p.m. New York time, the biggest intraday advance since Dec. 27. The 18-nation euro fell 0.1 percent to 141.44 yen. The yen increased 1.2 percent to 103.26 per dollar.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.5 percent to 1,030.28, ending the longest winning streak since May.

Peso Plunge

The Argentine currency dropped after Cabinet Chief Jorge Capitanich told reporters yesterday the central bank isn’t intervening in the peso’s decline, allowing the market, which is mostly closed to buyers of dollars, to adjust prices.

The peso fell as much as 18 percent, the biggest decline since 2002, when the government abandoned a one-to-one peg with the U.S. dollar following a record $95 billion default.

The Bloomberg JPMorgan Latin American Currency Index slipped as much as 2.5 percent to 90.27, the gauge’s lowest level since March 2009, amid weaker-than-expected Chinese manufacturing data. The Chilean peso decreased 1.3 percent and Brazil’s real fell 1.1 percent.

The preliminary reading of 49.6 for a Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.5 in December and a 50.3 median estimate of 19 analysts in a Bloomberg poll. China is the biggest trading partner for Chile and Brazil.

Franc ‘Repatriation’

Switzerland’s franc strengthened against the dollar as the government in Bern agreed to the Swiss National Bank’s request to raise the amount of capital banks must hold as a buffer to guard against mortgage writedowns, to 2 percent from 1 percent, of risk-weighted positions secured by residential real estate, according to a statement today. The currency added 1.6 percent to 89.73 centimes per U.S. dollar.

“The franc appreciated following the announcement, presumably because the decision could lead to repatriation as Swiss banks try to replenish their capital position,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, wrote in a client note. “But ultimately, today’s decision should be seen as less supportive for the franc. We maintain our bearish view.”

The South African rand fell to a five-year low versus the dollar and decreased versus most of its 31 main counterparts on concern a pay strike at the world’s biggest platinum mines and the Chinese manufacturing contraction may dent the country’s exports. The rand depreciated 1.1 percent to 10.9928 after falling to 11.0496, the weakest since October 2008.

Crisis Abating

The euro gained as Markit Economics said today its gauge of manufacturing output for the euro area rose to 53.9 in January, the highest since May 2011. Its measure of services rose to 51.9 from 51 the previous month. The median estimate of economists in a Bloomberg News survey was for an increase to 51.4.

A survey of Bloomberg subscribers published this week showed 57 percent of investors, analysts and traders judged the worst of Europe’s debt crisis to be over. Spain sold a record 10 billion euros ($13.7 billion) of bonds via banks yesterday amid a surge in demand for the securities of Europe’s peripheral countries.

“The data on manufacturing and services suggested the economic recovery in the euro region is gaining traction,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The outlook is positive for the euro. A break above a key resistance of $1.3550 also helped,” she said, referring to a level where sell orders may be clustered.

The Bloomberg Dollar Spot Index declined as the Chicago Federal National Activity Index rose 0.16 last month, compared with a forecast of 0.90 in a Bloomberg survey. It increased a revised 0.69 in November.

Another report showed applications for U.S. unemployment benefits rose by 1,000 to 326,000 in the period ended Jan. 18, Labor Department data showed in Washington. The median forecast of 50 economists surveyed by Bloomberg projected 330,000.

The greenback gained 3.5 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro rose 6.2 percent and the yen declined 11 percent.

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