Euro, sterling jump, dollar falters as market shifts to risk assets

WASHINGTON/LONDON: Euro and sterling rose against the safe-haven US dollar on Monday, supported by a risk-on sentiment across markets with European stocks rising on persistent hopes China will ease COVID restrictions.

A survey showed on Monday that investor morale in the euro zone improved in November, the first time it rose in three months, reflecting hopes that recent warmer temperatures and falling energy prices will prevent gas rationing on the continent this winter.

Investors were also cheered by a readout on Monday showing that German industrial production grew in September, beating analyst expectations. Industrial output was up 0.6% on the previous month, the Federal Statistical Office said.

The euro was last up 0.26% to $0.9986, its highest level since Oct. 27, while sterling was last trading at $1.1451, up 0.67% on the day.

“Data has not been that terrible in the form of the German industrial production, as well as euro zone [consumer price index] that we had last week and the [gross domestic product] numbers” that showed the euro zone grew at a rate of 0.2% in the third quarter, said Kathy Lien, a managing director at BK Asset Management.

The pan European STOXX 600 index rose 0.23% with traders pointing out that investors are still betting China will ease its coronavirus measures, despite officials saying they plan to keep the zero-COVID policy, which includes lockdowns, quarantining and rigorous testing.

“The risk on sentiment was obvious in the tail end of last week as speculators pounced on reports that China could review its zero-COVID policy,” said Jane Foley, head of FX strategy at Rabobank in London.

Against a basket of currencies, the US dollar index fell 0.549% at 110.460. It had lost almost 2% at the end of last week after reports that China would make substantial changes to its COVID-19 policy in coming months.

“With the calendar lighter this week, with the market... not completely pricing in additional tightening from the Fed, I think you’re just seeing some front-of-the-week profit taking,” said Lien.

Investors were also assessing Friday’s US jobs report which showed that firms added a more-than-expected 261,000 jobs in October and hourly wages continued to rise, evidence of a still-tight labour market.

But hints of some easing of market conditions, with the unemployment rate rising to 3.7%, fuelled hopes that the much sought-after Federal Reserve pivot could be on the horizon, capping potential gains for the dollar.

Four Fed policymakers on Friday also indicated they would still consider a smaller interest rate hike at their next policy meeting.

In China, the economic impact of the country’s zero-COVID policy was again highlighted in its trade figures released on Monday, which showed exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020.