Euro climbs past US$1.15 to 8-month high as focus on the Fed fades

[NEW YORK] The euro strengthened past US$1.15 for the first time since August amid speculation that the US won't raise interest rates any time soon.

Europe's shared currency rose for a sixth day, set for its longest run of gains since September, after a report showed manufacturing in the currency bloc expanded at a faster pace than initially estimated. The US currency lost ground versus most of its major peers as traders lowered expectations for a rate increase by the Federal Reserve in June to 12 per cent.

Persistent dollar weakness saw the euro climb for a third straight month in April - its longest winning streak since 2013 - amid signs that US policy makers aren't convinced either the global or domestic economy can withstand higher borrowing costs. The US has posted disappointing growth data even amid nascent signs of recovery in Europe appear to be taking hold.

"It's a key technical level we haven't reached in months," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York. "The rug has been pulled from the dollar, and the euro can go nowhere but up." The euro rose 0.3 per cent to US$1.1487 at 9:41 am New York time, after climbing to US$1.1501, the highest level since Aug 25. The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 major counterparts, fell 0.1 per cent, set for its lowest close in almost a year.

Expectations for higher rates in the US have faded since the Fed's meeting last week. Officials downgraded their assessment of economic growth, even as they emphasized improvement in the labor market and reduced overseas headwinds. By contrast, European data on April 29 showed the economy expanded more than analysts predicted in the first quarter and unemployment declined in March to the lowest since 2011.

"Even with the June meeting, there's got to be a lot of doubt about whether the Fed can raise rates," said Shaun Osborne, chief foreign-exchange specialist at Bank of Nova Scotia in Toronto. "It does complicate the outlook for the ECB to some extent. They've generally seemed to be more comfortable with the euro in recent months - that may change if the euro continues to strengthen."

A weaker euro is needed to solidify a recovery in Europe. Markit Economics said Monday that its monthly Purchasing Managers Index for the region rose to 51.7 from 51.6 in March, above a provisional reading of 51.5, even as the data still pointed to "anemic" factory growth.

"The eurozone is looking in a better shape than it has been in," said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. The Fed has not given a strong signal that rates will rise sooner rather than later so "it continues to be the case that investors are looking alternatives, and the euro by default is making some modest gains," he said.

BLOOMBERG