| The dollar fell sharply on
Monday, tumbling to its lowest so far this year against a basket
of currencies and the euro as optimism that the global economy
is on the road to recovery continued to boost riskier assets.
The commodity-related and higher risk Australian and New
Zealand dollars performed particularly well, hitting 8-month
highs against their U.S counterpart as oil prices CLc1 jumped
to a 7-month peak and European shares soared 2 percent .FTEU3.
News that China's manufacturing sector continued to expand
modestly lent further credence to the notion that the global
economy is on the mend and dented the U.S. currency.
The risk rally, which caused the dollar index to post its
biggest monthly percentage fall since 1985 last month, was
unhindered by news General Motors Corp (GM.N) would file for
Chapter 11 bankruptcy protection later on Monday.
Investors instead expressed relief a key uncertainty had
been removed in the market, while stronger-than-expected
purchasing managers' surveys on the euro zone and UK
manufacturing sectors also boosted sentiment.
"The initial response to the GM story, the China PMI data
and rallies in commodities and equities have all added to risk
appetite and have contributed to the advance in the euro against
the dollar," BNP Paribas chief currency strategist Hans Redeker
said.
The next focus in terms of data will be the release of the
latest U.S. ISM survey on manufacturing activity at 1400 GMT.
ECONECONUS
At 0950 GMT, the dollar index .DXY fell 0.8 percent to
78.634 .DXY, having hit its lowest since mid-December at
78.586.
The euro gained 0.6 percent on the day to $1.4236 <EUR=>,
just shy of an earlier year high of around $1.4245. The dollar
also fell against the Japanese yen, losing 0.8 percent to 94.54
yen <JPY=>.
Among perceived higher risk currencies, sterling rose to its
highest in seven months against the dollar of $1.6432 <GBP=D4>,
while the Australian and New Zealand dollars hit eight-month
highs of $0.8136 <AUD=D4> and $0.6511 <NZD=D4> respectively.
CHINA PMI BOOST
Adding to optimism that the global economy may be over the
worst of the recession, data showed China's manufacturing sector
continued to expand moderately.
Though the official purchasing managers' index dipped to
53.1 in May from 53.5 in April, this was the third month in a
row that the reading has been above the 50 level that separates
expansion from contraction. [ID:nPEK17043].
The final euro zone PMI manufacturing index beat
expectations meanwhile, rising to a seven-month high of 40.7 in
May, up from the provisional estimate of 40.5 [ID:nLAG003469].
The UK manufacturing PMI also showed the slowest contraction in
the sector in a year [ID:nLAG003470].
Meanwhile, investors will be watching closely for further
news on General Motors after U.S. officials said the auto giant
will file for bankruptcy later Monday, the third largest in U.S.
history [ID:nN01398575].
Analysts are beginning to question just how much further the
across-the-board rally in riskier assets can run, however, given
the sharp gains in recent weeks.
"Optimism is certainly gaining ground, but the question is
whether this is just a bear market rally or whether it is
something more sustained than that," SEB currency strategist
Johan Javeus said.
"The PMIs have been improving but at some point the market
will need to start seeing this improvement reflected in the hard
economic data," he added. By Jessica Mortimer (Editing by Ruth Pitchford) www.reuters.com
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