MisterFund dot com

Image credit to google

The euro retreated from a record high versus the dollar on Wednesday after a fall in manufacturing activity suggested that euro zone is starting to feel the pinch of a global slowdown and a strong currency.

Investors also sold the euro after a European Central Bank official toned down his hawkish comments, cooling speculation that the ECB’s next move on interest rates may be a rise, rather than a cut.

The RBC/NTC Eurozone Purchasing Managers Index for manufacturing dropped to 50.8 in April, its lowest in nearly three years. German manufacturing activity also fell, although both German and euro zone readings for the service economy rose. [ID:nL23902285]

“Manufacturing has dropped quite a bit and that has been the driver of growth in Germany … the euro is off a touch on it,” said David Pais, currency strategist at Citigroup.

“We’re a considerable way away from an ECB rate rise … I can’t see it happening, to be honest.”

By 1046 GMT the euro was down 0.2 percent at $1.5960, off the record peak of $1.6018 set the previous session according to Reuters data. It hovered around 164.60 yen , off an earlier four-month high of 164.98 yen.

The U.S. currency was steady at 103.03 yen .

Sterling slipped 0.2 percent to $1.9906 while the euro hovered in reach of a record high versus the UK currency after slide in British mortgage approvals to a record low in March underlined serious weakness in the housing market.

The data suggested that the Bank of England may continue cutting rates, and wiped out initial sterling gains made on BoE minutes showing that the central bank was in three minds about its 25 basis point rate cut to 5 percent this month.

NOYER COMMENTS

The ECB is expected to keep interest rates on hold at 4.0 percent for a while, in contrast to the U.S. Federal Reserve, which is expected to lower interest rates from the current 2.25 percent later this month. FEDWATCH.

The euro hit a record high above $1.60 on Tuesday, boosted by hawkish remarks from ECB officials, including Governing Council member Christian Noyer’s comments in an interview with French radio network RTL that the bank will do what is needed to being inflation back to target.

But Noyer later said markets had misinterpreted his remarks as a hint on the direction in which interest rates might move, the WSJ reported in its online edition.

“I would never engage in a discussion about the future path of interest rates, simply because nobody knows. It would be dangerous to make predictions in either direction,” the WSJ quoted Noyer as saying.

“The market is giving some credibility to Noyer backing off hawkish comments, it seems there’s more sensitivity to interest rates,” said Adam Cole, global head of currency strategy at RBC Capital Markets.

The euro is up more than 9 percent this year and its breach of $1.60 prompted chairman of the Eurogroup of finance ministers Jean-Claude Juncker to say the exchange rate is excessively volatile, which also prompted a slight dip in the currency. [ID:nL23411615]

German chipmaker Infineon (IFXGn.DE: Quote, Profile, Research) warned that the weak dollar would keep its sales flat at best this quarter.

But others were less concerned about euro strength, with German Finance Minister Peer Steinbrueck saying that its high value was having positive effects on import prices. [ID:nBAT002198]

The German exporters’ association said that while the speed of euro gains was striking, it did not expect such strength to continue in the longer term, while adding it did not have a particular pain threshold for the currency.

A strong currency makes exports expensive, while making imported goods cheaper.

The Australian dollar climbed to a 24-year high of $0.9541 after data showed that core inflation in Australia accelerated to its fastest pace in nearly 17 years last quarter.

The rise in core inflation was higher than many had expected and suggested that Australian interest rates would remain at a 12-year high of 7.25 percent for some time.

Taken from REUTERS