Azernews.Az

By Bloomberg

The euro held its biggest monthly gain in 4 1/2 years amid signs of life for the world’s second-largest economy, while the dollar rebounded against peers on prospects U.S. growth will pick up after a sluggish first quarter.

Speculators had built up record bets the euro would drop versus the greenback as the European Central Bank started buying bonds while the Federal Reserve discussed raising interest rates this year. That policy divergence remains, after economic reports Thursday underscored the Fed’s assessment that recent weakness in U.S. growth may be transitory.

The single currency was little changed Friday after touching a two-month high of $1.1266 a day earlier when data showed Europe’s consumer prices ended four months of declines.

“Improving euro-area data spurred an unwinding of bets on euro weakness under the European Central Bank’s aggressive easing,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “Depending on German yields, the euro could test the middle of the $1.13 level, having broken above $1.10.”

The euro was at $1.1212 as of 6:45 a.m. in London, after climbing 4.6 percent in April to close at $1.1224 on Thursday. It gained 0.2 percent to 134.20 yen after surging 1.2 percent.

German government bonds declined Thursday, extending a selloff from Wednesday that wiped off about 55 billion euros ($62 billion) from the value of euro-area debt.

Dollar Prospects

The Bloomberg Dollar Spot Index, a measure of the U.S. currency against 10 major peers, added 0.2 percent to 1,167.07. On Wednesday, it reached its lowest level since Feb. 6. The gauge fell in April for the first month since June. The dollar declined this week against eight of 10 major peers after U.S. growth trailed forecasts, clouding the outlook for Fed tightening.

“In the end, the ECB is conducting an expansive policy while the dollar will resume its climb once upcoming data show the recovery is intact and the Fed is set to raise rates,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “The euro area’s growth is not as strong as that of the U.S.”

Even after its losses in April, the greenback was the best- performing major developed currency during the past year, gaining 17 percent, according to Bloomberg Correlation-Weighted Indexes.

Temporary Slump

“The dollar is waiting for direction from European and U.S. yields,” said Takuya Kawabata, an analyst at Tokyo-based Gaitame.com Research Institute Ltd. “If today’s ISM data beats forecasts, views will strengthen that a slump is temporary and the dollar will advance on expectations over a Fed rate hike.”

Euro-area inflation was unchanged in April from a year earlier after falling 0.1 percent in March, the European Union’s statistics office in Luxembourg said Thursday.

Reports from the U.S. Thursday showed personal income stagnated in March and spending grew less than forecast, even as jobless claims decreased to the lowest level in 15 years. The Fed said “transitory” factors are partly responsible for sluggish growth after its meeting Wednesday.

The Institute of Supply Management’s index picked up slightly in April to 52 from 51.5 in March, according to a Bloomberg survey of economists.