Euro holds near nine-month high against dollar as ECB hopes fade

Euro holds near nine-month high against dollar as ECB hopes fade

LONDON The euro held near a nine-month high against the dollar on Tuesday, but European stocks fell after regional business activity data reinforced expectations that the European Central Bank ECB will raise rates by a further 50 basis points.

S&P Global's flash Composite Purchasing Managers' Index PMI climbed to 50.2 this month from 49.3 in December, the first time it has been above the 50 mark since June.

Europe's broad Stoxx 600 index lost 0.4 per cent after the numbers. Analysts said that the ECB can continue to raise rates to curtail inflation without worrying about damaging growth.

This should seal the deal for a 50 basis point hike next week for the European Central Bank, said ING economists in a note.

Fiona Cincotta, an analyst at Cityindex, said that the U.S. PMI data is due later in the day, and that it may be a case of bad news for the stock market, given what it could mean for expectations for the Federal Reserve's policy path moving forward.

We're still pretty Fed-focused right now, with the meeting coming up next week. The market is optimistic that there will be two rate cuts by the end of the year. The Federal Reserve's rate setting committee will hold a two-day meeting on February 1, with the ECB and Bank of England meeting the next day.

MSCI's world index was steady, having touched a fresh seven-month high early on, after shares in the U.S. gained overnight and Asian markets were not on holiday for the Lunar New Year earlier in the day.

Japan's Nikkei closed at a more than one-month high, recovering all its losses since the Bank of Japan's surprise policy tweak last month, though U.S. S&P 500 futures dropped 0.27 per cent on Tuesday.

In Britain, the flash Composite PMI dropped to 47.8 in January from 49.0 in December, the lowest since January 2021, and the lowest since January 2021, as the news was less good. Britain's FTSE 100 lost 0.34 per cent and the pound fell 0.7 per cent against the dollar to $1.2282, a loss of 0.34 per cent.

The euro was at $1.0862, just off its nine month high of $1.0927 a day before, it was close to its nine-month high of $1.0927 hit a day before.

The hopes of a better economic outlook in Europe, along with suggestions that the U.S. Federal Reserve may slow rate hikes faster than the ECB, have supported the euro and other neighbouring currencies.

The benchmark US 10-year Treasury yield little changed at 3.5097 per cent, so bond prices were muted globally. Germany's 10-year yield was steady at 2.20 per cent.