Euro Rises On Risk Appetite After Australia Rate Hike Surprise

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The euro gained on the dollar and pound on Tuesday in New York after Australia raised its interest rates, boosting hopes of a speedy economic recovery.

The common currency reached a near-term high against the dollar and drifted toward the yearly high from mid-September. The euro leveled off at a near-term high against the pound, but slipped moderately against the yen.

Traders also considered comments from European Central Bank governing council member Axel Weber, who said recent improvements in economic indicators are showing only green shoots of recovery, while there remain considerable downside risks.

Also, reports surfaced indicating that Gulf Arab states were in talks with other states to replace the U.S. dollar with a basket of currencies in oil trading. The report was denied by senior officials from Saudi Arabia, Russia, Kuwait and the United Arab Emirates.

The euro climbed to a 12-day high of 1.4761 against the dollar. If the European currency gets above 1.4843 it will reach a yearly high.

The euro leveled off near a nine-day high against the British pound. The 16-member currency touched as high as 0.9272 against its UK rival before finding resistance.

The Office for National Statistics report released on Tuesday showed a 2.5% monthly decline in the August industrial production, reversing a 0.5% rise in July. Economists were expecting the monthly industrial production growth to slow to 0.2% in August. The industrial production index stood at 85.9, the weakest since September 1987.

The euro fell to a four-day low against the Japanese yen, moving near 130.75. With the drop the European currency moved to the low end of a near-term trading range.

The euro plunged to a six-day low of 1.6518 against the Australian dollar. If the European currency gets below 1.6510, it will hit a 14-month low.

The Reserve Bank of Australia unexpectedly lifted their key interest rate by 0.25% to 3.25%, fueling speculation that other nations in position to raise interest rates will soon begin to do so. However, officials in Washington have repeatedly signaled that the US economic recovery is too fragile to unwind accommodative policies.

In the Eurozone, the seasonally adjusted Construction Purchasing Managers' Index or PMI rose to 43.8% from 43.6 in August. The PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.

(Market News Provided by RTTNews)