RTTNews - In European deals on Monday, the euro rose to a fresh 2-month high against the dollar and a 6-day high against the yen after a report showed that the Euro-zone manufacturing PMI climbed to an 11-month high in July, adding to signs the worst recession in six decades may have bottomed out.
A final report from the Markit Economics showed today that the Manufacturing Purchasing Managers' Index or PMI for the euro area rose to an 11-month high of 46.3 in July from 42.6 in June. The index also stood above the flash estimate of 46. This was the second strongest rise in points terms in the history of the survey.
However, the index is still below the neutral level of 50, showing a contraction in the sector. A reading above 50 indicates expansion, while a reading below 50 signals a contraction.
The sharp improvement in the manufacturing purchasing managers' survey in July boosts hopes that the euro zone could return to modest growth before the end of the year, and conceivably even in the third quarter.
The euro region will experience a modest recovery next year, the International Monetary Fund said in a report last week. The Washington-based lender with 185 member nations sees the 16-nation economy shrinking 0.3 percent in 2010 after a 4.8 percent contraction this year.
The European Central Bank forecasts the region's economy will resume expansion in the middle of next year. While evidence mounts that the worst of the recession is over, rising unemployment may hamper the recovery as consumers cut back on spending.
The ECB, which has pumped billions of euros into markets to support lending, kept its benchmark rate at a record-low of 1 percent on July 2 and has started buying as much as 60 billion euros of covered bonds, securities backed by mortgages and public-sector loans, to boost lending.
The ECB is scheduled to meet this week to decide on interest rates. Analysts expect the central bank to keep rates steady at 1%.
Earlier today, Germany's Federal Statistical Office announced that the retail sales in real terms dropped 1.6% year-over-year in June, compared with a 3.7% fall in May, revised from 2.9% decline reported initially. Economists were looking for an increase of 0.9%.
Month-on-month, retail sales dropped a seasonal and calender adjusted 1.8% in June, after falling 1.3% in May, revised from 0.4% increase estimated initially. Economists had expected an increase of 0.3%.
The euro fell to 1.4208 against the dollar at 3:00 am ET Monday. Thereafter, the euro bounced back and reached a fresh 2-month high of 1.4317 by about 5:20 am ET. On the upside, 1.434 is seen as the next target level for the euro. At Friday's close, the euro-dollar pair was quoted at 1.4259.
The dollar and the yen plunged today as a rise in most Asian and European shares prompted investors toward risky assets.
European stcocks opened higher today and at 4:56 am ET, the FTSEurofirst 300 .FTEU3 index of top European shares was up 1.3 percent at 940.63 points, and had risen as high as 940.84, the highest since November.
The European benchmark index is up more than 45 percent from its lifetime low of March 9, as second-quarter corporate results have made investors a little more confident on recovery prospects.
The euro has gained 4% against the dollar after it touched a 1-month low of 1.3750 on June 16.
The euro advanced against the yen after dropping to 134.59 by about 3:00 am ET Monday. The euro-yen pair that closed last week's trading at 134.93 is currently trading at a 6-day high of 135.81. The next likely target for pair is seen at 136.1.
The euro jumped to a 25-day high of 136.12 against the yen on July 27. Although the European currency weakened thereafter, it rebounded after hitting a 1-week low of 132.80 on July 29. Since then, the euro-yen pair has appreciated more than 2%.
The euro surged up to 1.5269 against the Swiss franc by about 10:30 pm ET Sunday. Although the euro declined thereafter, it rebounded after touching a low of 1.5234 at 2:35 am ET Monday. At present, the euro-franc pair is worth 1.5262, compared to last week's close of 1.5227. If the euro-franc pair climbs further, it may find near term resistance around the 1.534 level.
Switzerland's Purchasing Managers' Index rose to 44.3 in July, which was the highest reading since October 2008, a survey from the SVME Association of Purchasing and Materials Management and Credit Suisse showed. Economists were expecting the reading to climb to 43.6 in July from 41.8 logged in the prior month.
The euro plunged to a 5-week low of 0.8465 against the pound in early European deals on Monday. The next downside target level for the European currency is seen at 0.844. The euro-pound pair closed last week's trading at 0.8532.
The pound soared today as U.K's. manufacturing sector expanded for the first time in more than a year in July, adding to signs that the economy is emerging from the worst recession in a generation.
A gauge based on a survey of factories climbed to 50.8, the highest since March 2008, from a revised 47.4 in June, the Chartered Institute of Purchasing and Supply and Markit said today in London. Economists were looking for an increase of 47.7 in June.
The euro has been in a downward channel against the pound after it reached a 5-week high of 0.8702 on July 13. Since then, the euro-pound pair has lost 3%.
Traders are now likely to focus on the North American session, in which the U.S. ISM manufacturing index for July and the construction spending report for June are expected.
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