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German data brings relief to euro

Thursday, August 21 09:44:42

The euro recovered from a 11-month low against the dollar, helped by better- than-expected German private sector growth data, although gains were likely to be temporary given expectations of more monetary stimulus.

The U.S. dollar, buoyed by rising Treasury yields and widening interest rate differentials in its favor, traded below 11-month peaks against a basket of major currencies, having scaled those highs after minutes of the Federal Reserve's July meeting, released on Wednesday, sounded slightly hawkish.

The Australian dollar extended its losses after a preliminary survey of China's manufacturing sector showed growth slowing to a three-month low.

In the euro zone, Germany's private sector grew for a 16th month running in August, suggesting Europe's largest economy could expand robustly in the third quarter after it surprisingly contracted in the second.

Data from France showed business activity was stagnant in August, although service sector growth picked up.

While the composite euro zone survey showed activity slowing in August, it offered some relief to the single currency, as some had feared a far worse reading.

The euro rose 0.1 percent to $1.3278 after the German survey, having hit an 11-month low of $1.3242 in Asian trade.

The single currency has shed 1.2 percent in the past week as the dollar rebounded on better-than-expected data. Falling German Bund yields, lower money market rates, and a narrowing euro zone current account surplus helped push the euro lower.

The euro's bounce saw the dollar index slip to 82.20, having earlier hit 82.364, its highest since September. It broke out of the 81.188/81.716 range that held for much of this month.

The Fed minutes showed policymakers debated whether interest rates should be raised earlier given a surprisingly strong jobs market recovery. Most officials, however, wanted further evidence before changing their view.

In any case, U.S. Treasury yields rose. Two-year yields hit a two-week high just shy of 0.5 percent.

That underpinned the dollar, which touched its highest in over four months at 103.965, not far from the April peak of 104.13. A break there could see the market aim for the 2014 high of 105.45 set in January. (Reuters)

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