LONDON: The euro hit a one-month high against the dollar on Wednesday, buoyed by faster-than-expected expansion in German private sector business activity.
The signs of euro zone recovery contrasted with weaker Chinese PMI data which earlier triggered safe-haven inflows into the dollar and analysts said euro gains may be short-lived.
German and French PMI surveys both beat expectations and led some investors to trim bets against the euro. Overall, the business polls indicated that the euro zone economy was likely to grow in the current quarter.
But given the "forward guidance" from the European Central Bank that it will keep monetary policy accommodative and perhaps even lower rates to boost growth, any euro gains are likely to be held in check, traders said.
The euro rose to $1.3255, matching its highest since June 21, with stop loss buy orders triggered on its move above $1.3050. But offers to sell around $1.3300, especially from Asian central banks, are likely to check gains.
"The PMI data has pushed the euro up," said Chris Walker, currency strategist at Barclays. "But we are still short euros as ultimately euro/dollar is a relative monetary policy play. A rise above $1.33 is a sell."
In contrast to the ECB, the Federal Reserve is considering scaling back its ultra-loose monetary stimulus as the US economy outperforms. That has led to a widening in spreads between US Treasury and German Bund yields.
While spreads have narrowed since Fed chief Ben Bernanke indicated any slowing of stimulus would be data dependent, the gap between the benchmark 10-year bonds remains near its highest in almost seven years.
The euro's rise pushed the dollar index towards one-month lows. The index, which measures the dollar's performance against a basket of currencies, was trading at 82.00, not far from Tuesday's one-month low of 81.926.
The index had risen in Asian trade, helped by safe-haven inflows after the July flash HSBC/Markit Purchasing Managers' Index for China came in at an 11-month low and dampened appetite for risk.
"Risk appetite is likely to be muted and the dollar should benefit as a result," said Roy Teo, FX strategist for ABN AMRO Bank, referring to the weakness in the gauge of Chinese manufacturing activity.
The Australian dollar, however, declined after data.
It fell 1 percent to $0.9195, down from an intraday high of $0.9320, its strongest since late June. The Aussie dollar is sensitive to economic data from China, which is Australia's biggest export market.
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