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Euro rises, eyes 2-year highs against weary dollar

Thursday, 24 Oct 2013 | 8:59 AM ET
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The euro was steady against the dollar on Thursday after disappointing euro zone data pulled it away from a two-year high struck earlier in the session.

Purchasing managers' surveys for the euro zone showed the pace of growth in business activity eased unexpectedly this month, suggesting the region's recovery may be less solid than previously thought.

The euro was last steady near $1.38, having earlier risen as high as $1.3824, its strongest since November 2011, with traders saying it extended gains after surpassing a reported options barrier at $1.38 and as upbeat China data lifted riskier currencies.

Expectations that the U.S. Federal Reserve will maintain its stimulus program into next year also weighed on the dollar.

(Read more: De-crowning the dollar, and the 'collapse' ahead)

"The market is still focused on the Fed, but the disappointing tone of the euro zone data will suggest that the euro is looking toppy up here and this should keep euro/dollar in check," said Jane Foley senior currency strategist at Rabobank.

She said Thursday's peak of $1.3824 could now act as stiff resistance for the euro.

US needs to start defending dollar: Pro
The S&P 500 pulled back after a record run. Steve Cortes of Veracruz says the main reason the U.S. market got hit is because of overnight news about worries for Chinese tightening policy. He also discusses the dip in crude, and trouble for the U.S. Dollar.

Beyond there, further resistance stood at the Nov. 4 high of $1.3870. A break above there would leave it on course to test the psychological $1.40 level.

A purchasing managers' survey (PMI) on Chinese manufacturing activity hit a seven-month high in October, buoyed by strong new orders and raising optimism that the world's second-biggest economy may be recovering from a slow patch. This lifted riskier currencies such as the euro as well as the Australian dollar.

The dollar fell broadly, hitting a near nine-month low against a basket of currencies on rising expectations the Federal Reserve will delay reducing its bond-buying program until into next year.

(Read more: China's factory sector may contract in October)

Weak U.S. jobs data on Tuesday suggested the U.S. recovery was not yet on a firm footing. On Thursday, jobless claims fell by less than expected amid ongoing computer troubles in California.

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The dollar index was last at 79.25, having dropped to as low as 79.08.

The dollar, however, held steady against the yen above 97 yen, hovering just above a two-week low of 97.15 yen set on Wednesday and chart support at 97.31 yen, the 200-day moving average.

The Australian dollar was last near $0.96, also paring gains after an earlier boost from the China data. Analysts said concerns remained about rising money market rates in China.

(Read more: Cramer: Dollar is a laughing stock worldwide)

On Thursday, China's benchmark seven-day repo rate rose nearly a full percentage point after China's central bank let cash flow out of the money market for the second straight week.

"The Chinese (PMI) numbers this morning have helped turn sentiment around slightly but there are still concerns about money market conditions," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

--By Reuters

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