Upward trend of the euro waning

The euro's upward momentum appeared to be waning somewhat yesterday after reaching highs above $1.07 last week, while sterling held firm against the dollar.

The euro at one point pulled back nearly 1 cent below last week's peaks, despite robust European purchasing managers' data. It closed at $1.0656 against Friday's $1.0744 peak and $1.0696 late European level. Against sterling, it closed at 66.07p from 65.99p on Friday.

"It's a bit surprising given we had quite a good run of data out of the euro area," Mr Francis Breedon, senior FX strategist at Lehman Brothers in London, said of the subdued euro.

Other analysts pointed to better economic data coming out of euro-zone economies, particularly France and Germany, as the reason for the recent recovery of the single currency, which languished close to parity with the dollar earlier last month.

The latest figures "gave more support to the idea that the euro zone economy is showing tentative signs of recovery", Bank of America economist Ms Deborah Read said.

She added that the euro could now climb to as high as $1.08 in the near future, a level it has not seen since mid-May.

The euro, yen and sterling have all benefited from a recent bout of dollar weakness, triggered by a sell-off of assets that was itself sparked by growing fears that the authorities will have to raise interest rates to head off inflation.

According to Reuters purchasing managers' indices, economic recovery in the euro zone accelerated in July, with the German and Italian indicators showing manufacturing expanded for the first time in 10 months.

At the same time, it was announced that Britain's manufacturing sector grew at its fastest rate for 18 months, thanks to a surge in new orders.

The Chartered Institute of Purchasing and Supply said its purchasing managers' index rose to 52.7 last month, its highest level since December 1997 and up from 51.0 in June. A reading above 50 indicates expansion, below 50 contraction.

Meantime, spending on US construction projects rebounded in June after two straight months of decline.