Reuters: US Dollar Report: FOREX-Euro falls on weak euro zone manufacturing data

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FOREX-Euro falls on weak euro zone manufacturing data May 2nd 2012, 08:42 Wed May 2, 2012 4:42am EDT * Euro falls vs dlr as data shows slide in manufacturing * Figures contrast with strong US factory data * Dollar also off 2-1/2-month lows vs yen * U.S. jobs data, ECB, votes in France and Greece in focus By Jessica Mortimer LONDON, May 2 (Reuters) - The euro fell against the dollar on Wednesday as weak manufacturing data raised concerns about risks facing the euro zone economy, while the yen rebounded from 2-1/2 month highs versus the U.S. currency after strong U.S. numbers on Tuesday. Traders said the contrasts between the performance of the euro zone and U.S. manufacturing sector could weigh heavily on the euro. A purchasing managers' survey showed Italy's manufacturing sector shrank far more than expected, with new orders tumbling at their fastest rate in three years. This came on top of weaker-than-forecast PMI data out of Germany, Spain and France which also showed manufacturing activity contracting sharply. The euro fell 0.5 percent to $1.3171, slipping well below a one-month peak of $1.3284 hit the previous day. Figures from the United States on Tuesday showing the strongest factory growth in 10 months. However, markets were cautious before U.S. jobs data on Friday, a European Central Bank meeting on Thursday and elections in France and Greece at the weekend - all of which could push the euro even lower. Volumes remained thin after the May Day holiday in Europe on Tuesday and traders said this could cause exaggerated moves. "It is prudent to watch and wait at the moment. There is so much in the way of information and given the lack of liquidity with it being Golden Week in Japan and the May Day holiday yesterday it will take a while for the market to make an assessment," said Lauren Rosborough, senior currency strategist at Societe Generale. Against the yen, the dollar rose 0.3 percent to 80.31, well above a low of 79.640 yen hit on Tuesday. "Improving data out of the U.S. has given a bit off a sell focus to the yen and dollar/yen has settled above the 80 level," Rosborough said. Pressure on the yen also increased after a Moody's ratings agency official said Japan's delay in implementing a sales tax increase could bring forward "the day of reckoning" in the Japanese government bond market. The dollar index, a measure of the dollar against a basket of major currencies, rose 0.3 percent to 79.111. RISKS AHEAD With elections ahead, political uncertainty has the potential to push the euro below $1.30. Francois Hollande, front-runner and first-round winner in the French presidential race, has promised to shift the debate in Europe towards promoting growth if he is elected, raising concern about tensions between Germany and France. But others have played down such fears, saying Germany appears to be relaxing its focus on austerity. The election in Greece is more unpredictable. The two main parties supporting the country's bailout scheme are thought to have only a wafer-thin lead to form a coalition over smaller parties opposed to the programme. The focus on Wednesday will switch to U.S. private payrolls figures, an indicator of the health of the jobs market before non-farm payrolls numbers on Friday. "After the surprisingly strong ISM number, the next job data (on Friday) will be more important than usual. If it is strong, it could cement expectation of strong recovery at least in the United States," said Mitsuru Saito, chief economist at Tokai Tokyo Securities. "If the job data sparks risk-on mood, that should lead to the yen's fall and rise in bond yields. This weekend has a chance of triggering such a trend," he added. Chartists say if the payroll data helps the dollar to end the week above 80.42, the cloud top on weekly Ichimoku charts, it could put the dollar on track for further recovery after this week's fall below 80 yen. Link this Share this Digg this Email Reprints

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