German and Euro zone flash PMIs beat expectations
* China PMI shows mixed picture, fails to excite markets
* Kiwi falls 0.8 pct, dented by benign inflation data (Updates after euro zone PMI surveys)
By Anirban Nag
LONDON, Oct 23 (Reuters) – The euro recovered from a two-week low against the dollar on Thursday after data showed euro zone business growth unexpectedly picked up in October, though gains could be fleeting amid continued expectations of more monetary easing.
Concerns over the health of the European banking sector have also weighed on the euro, and those worries deepened after Spanish newswire Efe said on Wednesday at least 11 lenders had failed stress tests run by the European Central Bank.
The ECB, which will publish the test outcomes for 130 banks on Sunday, said final results had not yet been sent to the lenders involved, and it could not comment on individual institutions.
The euro rose to $1.2662, rebounding from a two-week low of $1.2614 hit after data showed France’s preliminary composite purchasing managers’ index for October fall to 48.0 from a final reading of 48.4 in September. That was well into contractionary territory.
However, the euro recovered after data showed Germany’s private sector grew faster in October as manufacturing rebounded, suggesting Europe’s largest economy may be gaining momentum in the fourth quarter.
The euro zone composite flash purchasing managers’ index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, rose to 52.2, above all forecasts in a Reuters poll.
“The German numbers are promising and is a sign that things will not deteriorate. The weak French numbers do not surprise, and net-net, it does little to expectations that the ECB will have to step in with further easing,” said Richard Falkenhall, currency strategist at SEB.
“We expect the euro to grind lower and hit $1.15 in a year’s time. That forecast factors in tightening by the Federal Reserve next year and the ECB asset purchases, including buying of government bonds.”
The euro had weakened this week after Reuters reported on Tuesday that the ECB was considering buying corporate bonds on the secondary market and may decide on the matter as soon as December.
The Norwegian crown fell to a day’s low of 8.40 crowns per euro after Norway’s central bank kept interest rates unchanged at 1.5 percent, as expected, and said that the recent fall in oil prices increased uncertainty.
CAUTIOUS ABOUT DOLLAR
With the euro rising, the dollar remained on the back foot against a basket of major currencies, trading at 85.711.
The dollar has lost ground in recent weeks as concerns about slowing global growth and muted inflation prompted investors to trim bets that the Fed will raise interest rates soon after an expected end to its bond-buying stimulus later this month.
“Market players are hesitant to build positions ahead of next week’s Federal Reserve meeting, especially as officials have sent dovish signals recently,” said Junichi Ishikawa, market analyst at IG Securities in Tokyo.
Earlier, a survey showed China’s factory sector grew a shade faster in October, but the details underscored a still-shaky economy.
The New Zealand dollar slid 0.8 percent to $0.7864 in the wake of softer-than expected inflation data that could give the Reserve Bank of New Zealand room to further delay its next interest rate hike. (Additional reporting by Masayuki Kitano; Editing by Andrew Heavens)