* Euro touches lowest since Sept. 18, then recovers
* Speculation remains that ECB may loosen policy as early as
* Australian dollar rises on stronger retail sales
NEW YORK, Nov 4 The euro climbed from a near
seven-week low against the dollar on Monday after data showed
manufacturing in the euro zone accelerated last month, but gains
were capped by speculation the European Central Bank may soon
cut interest rates.
Traders said the euro could stay under pressure before the
ECB's policy meeting on Thursday. Plunging inflation in the
region has led a growing number of banks, including UBS and RBS,
to forecast a cut in the refinancing rate as soon as this week.
"European manufacturing PMIs show marginal improvement but
(the data) doesn't alleviate concerns of a dovish ECB later in
the week," said Scott Smith, market analyst at Cambridge
Mercantile Group in Calgary, Alberta.
The euro gained 0.2 percent to $1.3516 after a survey
showed the manufacturing Purchasing Managers' Index rose to 51.3
from September's 51.1, in line with an earlier flash reading and
with the consensus forecast of economists.
Earlier, the euro fell to $1.3441, according to Reuters
data, its lowest since Sept. 18 and well below a nearly two-year
high of $1.3832 struck on Oct. 25.
The drop in the euro, which shed more than 2 percent last
week, triggered a rush to hedge against further weakness.
One-month euro/dollar implied volatility, a gauge of
how choppy a currency is expected to be, jumped.
Credit Agricole said the ECB is unlikely to cut the
refinance rate this week, but given the downside risks to
inflation from a stronger currency, ECB chief Mario Draghi may
flag a cut in the deposit rate, which would be negative for the
A cut in the deposit rate, at which banks park excess cash
with the ECB, to negative territory would make holding the euro
expensive and force investors to sell it. It would also make the
euro a funding currency for carry trades, in which investors
borrow in a cheap currency to buy a higher-yielding one.
Analysts said market moves could be muted given the ECB
meeting on Thursday will followed by U.S. nonfarm payrolls data
for October on Friday.
"The end of the week will be more important than the
beginning," said Christopher Vecchio, currency analyst at
FXCM-owned DailyFX.com in New York. "These events could prove
The euro's bounce on Monday nudged the dollar index down
from a near seven-week high of 80.930 hit in Asia, the
strongest since mid-September. It last stood at 80.547, down 0.2
percent on the day.
The dollar had risen in Asia after Dallas Federal Reserve
Bank President Richard Fisher told a conference of business
economists in Sydney he was concerned that corporate credit
spreads have narrowed too much. He also said he does not see the
Fed's balance sheet rising to $6 trillion or more.
Against the yen, the dollar was last down 0.1 percent
against at 98.57 yen.
Data on Monday showed orders for a wide range of U.S.-made
capital goods sank more than estimated in September, a sign
companies cut their investment plans sharply as Washington
hurtled to the brink of default. But other data suggested
factory activity accelerated in October.
The Australian dollar edged higher, supported by
stronger-than-expected retail sales. It rose 0.7 percent to