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Euro hits 3-1/2 month low
LONDON, England (Reuters) -- The dollar hit a 3-1/2 month high versus the euro and a four-month peak on the Swiss franc on Tuesday as market hopes for U.S. economic recovery gathered pace ahead of new economic data from the United States. Europe's single currency, already suffering from concerns that the euro zone economy is not recovering as fast as the United States, was also hit by reports that Taiwan's central bank had no plans to diversify more of its $182 billion of foreign reserves into the euro. Analysts said further dollar gains versus the euro were likely even if the closely watched German economic sentiment indicator ZEW, due out at 0900 GMT, was strong. "The euro has broken through lows from back in July and this is quite significant,'' said Ian Stannard, foreign exchange strategist at BNP Paribas in London. "The move was not confined to just euro/dollar but was broader, reflecting a dollar-positive story with regard to U.S. recovery. And we would expect euro/dollar to continue lower.'' At 0750 GMT, the dollar was up 0.5 percent from the previous day's close versus the euro, having set 3-1/2 month peaks at $1.1080 early in Europe. "We will get a test of the $1.10 low,'' said Stannard. Against the Swiss franc, the dollar was up half a percent at 1.3954. The euro also hit a one-month low versus the yen at 132.46, while the dollar was roughly unchanged versus the Japanese currency. U.S. stocks paved the way overnight for the dollar's rally with the Dow Jones Industrial Average ending at a 14-month high as equity investors bet on economic recovery pushing up corporate profits. RELATIVE GROWTHU.S. economic data releases later on Tuesday include the University of Michigan's consumer sentiment survey, which was initially due out last Friday but had been postponed because of a massive power outage across North America. However, markets will also focus on euro zone data due beforehand, especially the German ZEW indicator, for signs of economic activity in the euro zone. ZEW is seen rising to 47.0 in August from 41.9 in July, its highest in almost a year. Euro zone July consumer inflation and June industrial production numbers are due at 1000 GMT, and expected to show price growth stable at two percent and output contracting 0.7 percent from the year before. Europe's economic woes were underscored last week when data from Brussels showed the euro zone economy stagnating in the second quarter. Meanwhile, Taiwan's central bank said the euro was still expensive and thus not worth diversifying the bank's reserves into. Taiwan, which has the world's third largest foreign exchange reserves, also said it considered U.S. Treasuries a good buy now. In the past it has often bought dollar to cap the domestic currency and protect export competitiveness. "The main factor (behind the euro's fall) has been this report that the Taiwanese central bank believes the euro is too expensive at current levels to buy,'' said Aziz McMahon, currency strategist at ABN Amro.
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