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[LONDON] The euro and pound fell against the US dollar Monday, ending a strong rally triggered by central banks signalling tighter monetary policy in reaction to solid economic growth and high inflation.
As the year's second half got under way, European stock markets rebounded from heavy falls ahead of the weekend.
The US dollar last week tumbled after the ECB, the Bank of England and the Bank of Canada indicated that the age of cheap cash - in place since the financial crisis - was drawing to a close as the world economy gets back on track.
"The coordination of language reflects a coordination of the recognition that the global economy is pointing higher and the time for emergency policies in individual jurisdictions has ended," said Greg McKenna, chief market strategist at AxiTrader.
During the first half of the year, the euro jumped about 10 per cent against the US dollar, while the pound gained almost as much from its January lows, despite British political uncertainty caused by the country's decision to leave the European Union.
Some analysts said that the US dollar's recovery Monday might well be short-lived, with its downward trend resuming as the summer wears on.
"After last week's breakdown, the small rebound at the start of this week could prove to be a dead-cat bounce," said Fawad Razaqzada, Market Analyst at Forex.com.
European equity markets had a strong day, as a firm Wall Street and recovering oil prices lured investors back into the fray.
London gained nearly one per cent, while Frankfurt and Paris posted even better gains at the closing bell.
Wall Street was also firmer, up nearly one per cent approaching midday in New York, with subdued volumes on a Monday sandwiched between the weekend and the July 4 bank holiday.
Eurozone markets reacted well to regional manufacturing PMI data, but the UK's manufacturing reading came in at a three-year low of 54.3, which "doesn't bode well for the country's second-quarter growth", noted Spreadex analyst Connor Campbell.
"While the UK economy suffered its latest setback, the eurozone continued to power ahead, with the region's own manufacturing PMI arriving at a six-year peak of 57.4," he added in a note to clients.
Elsewhere Monday, Tokyo's Nikkei stocks index edged up 0.1 per cent, helped by a slightly weaker yen and a pick-up in confidence among Japanese businesses, traders said.
But investors were spooked by a huge defeat for Prime Minister Shinzo Abe in Tokyo assembly elections, with his ruling party losing more than half its seats in the wake of several scandals.
Shanghai added 0.1 per cent following a better-than-expected private survey showing Chinese manufacturing expanded last month.
China on Monday widened access to its US$10 trillion bond market, which analysts said would bolster Beijing's drive to internationalise the yuan and more deeply integrate its markets with the global financial system.