FOREX-Euro slides after weak French data

Thu Feb 20, 2014 4:41am EST

Related Topics

* French PMI data well below forecasts

* China February HSBC flash PMI hits seven-month low

* Soft China survey deals blow to Australian dollar

* Dollar slips versus yen

LONDON, Feb 20 (Reuters) - The euro fell back against the dollar on Thursday after a French purchasing managers' index came in well below forecast, underlining a still fragile outlook for the European economy.

The dollar had been broadly weaker overnight, reflecting doubts that have grown in the past month over the pace of U.S. growth and troubles in some developing economies which have boosted traditional safe havens like the yen.

But the French figures overturned any hope of an immediate push higher for the euro, already trading within striking distance of 2-1/2 year highs against the dollar.

German figures released after those for France did little to counter worries that the euro zone economy will need more aid from the European Central Bank at a time when its counterparts in Britain and the United States are headed in the other direction.

"At the moment there is still a lot of uncertainty around what ECB is going to do, but France is a very important part of the picture," said Kathleen Brooks, director of research at Forex.com.

"If the euro zone's core isn't strong, maybe it makes it easier for the ECB to move on policy."

The euro fell to session lows of $1.3685 before recovering to trade around 1.371, off around 0.2 percent on the day.

Still, the broader dollar strength that was most banks' bet at the start of this year has failed to materialise and another batch of weaker numbers from China overnight added to concerns around emerging markets which have proven a net positive for the euro and other traditional safe havens like the yen.

The dollar fell half a percent against the Japanese currency overnight.

"We have weak data from China and that is playing into a weaker dollar," Peter Kinsella, strategist with Commerzbank in London, said ahead of the PMI numbers. "That to me would suggest that we still have room (for the euro) to go higher."

Brooks said the euro's failure to fall substantively past 1.3700 suggested it may resume its track higher.

"It does look like a fairly shallow pullback, although on the upside we're totally rangebound. It's a bit disappointing that we didn't get past 1.3830, so from a technical perspective that is a weaker sign for the euro," she said.

The other big loser overnight had been the Australian dollar , hurt by an HSBC survey that showed activity in China's factories shrank again in February as employment fell at the fastest pace in five years.

The Aussie closely tracks the economic fortunes of China, Australia's biggest trading partner, and it shed 0.5 percent to $0.8957, coming down from $0.9012 reached earlier in the session.

"The PMI survey revived the idea that the Chinese economy is stagnant. Even if the Reserve Bank of Australia refrains from cutting rates, it is not the ideal condition to go long on the Australian dollar," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

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