The euro rallied against the dollar on Tuesday as global economic data that beat forecasts fuelled risk-taking, but the currency was expected to remain under pressure due to Europe's sovereign debt crisis and low growth. The US manufacturing sector posted its strongest growth in six months in December, according to an industry report, and a rise in new orders suggested good momentum in 2012.
The euro hit a global session high versus the dollar after minutes from the last US Federal Reserve policy meeting were construed as dollar-negative. In minutes from its December 13 meeting, the Fed said it would begin publishing forecasts on the path of interest rates later this month, a move that could suggest rates will be on hold for longer than previously expected.
Low rates makes the dollar less attractive than higher-yielding currencies. "The euro's gains are a combination of both earlier momentum stemming from economic data and the headlines from the FOMC minutes," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The euro rose to a session high of $1.3076, pulling away from its 2011 trough of $1.2858 hit last week on trading platform EBS. It last traded at $1.3054, up 0.9 percent on the day. The euro was earlier buoyed by better-than-expected Chinese manufacturing and service data, while German unemployment fell more than forecast and Monday's manufacturing PMI for the eurozone showed less contraction than expected. Persistent worries about high sovereign debt levels in some euro zone countries and a dearth of solutions to a crisis now in its third year are expected to keep the euro under pressure.
"There needs to be a sustained improvement in eurozone fundamentals for a prolonged rebound in the euro," said Valentin Marinov, currency strategist at Citi in London. Against the yen, traders reported demand for euros from US and UK banks contributed to a recovery from an 11-year low touched on Monday. The euro rose 0.8 percent to 100.16 yen, a day after falling as low as 98.71 yen.
Investors are particularly concerned over Italy, as it faces about 100 billion euros of bond redemption and coupon payments in the first four months of 2012, with 10-year borrowing costs near the crucial 7 percent level. Finance ministers from the EU's 27 members will meet on January 23 before their leaders hold a summit a week later. Growth-related currencies were the best performers against the dollar on Tuesday, with the Aussie gaining 1.5 percent to $1.0374 and the New Zealand dollar rising 1.5 percent to $0.7902. The dollar dipped 0.3 percent to 76.64 yen, not far from the record low of 75.311 yen hit in late October on EBS.
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