Early PMIs Lift Euro After Balanced Fed Minutes

Investing.com -- The euro turned higher against the dollar in early trading in Europe Thursday, as purchasing manager indices from France and Germany signalled that the euro-zone economy may be bottoming out after its slowdown at the end of 2018.

At 03:30 AM ET (0830 GMT), the euro was at $1.1354, just below a two-week high against the dollar, after PMI readings that outstripped expectations - even though Germany's manufacturing sector appeared to contract in February.

The dollar index that measures the greenback against a basket of major currencies was at 96.297, close to a two-week low. That's despite a broadly balanced set of minutes from the Federal Reserve’s last policy meeting that indicated that interest rates could still rise later in the year if the current uncertainty over the economy clears.

"The dollar drew some lift as the minutes appeared to have appeased market participants who were clinging to views that the Fed would hike rates one more time this year - but all in all, the minutes were in line with what the Fed said in January," said Daisuke Karakama, chief market economist at Mizuho Bank.

However, the greenback and the euro were down against the British pound, after an upbeat statement following a meeting between Prime Minister Theresa May and European Commission President Jean-Claude Juncker.

The statement revived hopes that a ‘no-deal Brexit’ can be avoided at the end of next month, despite increasing signs of political disarray in the U.K. Reports suggest that May is coming under increasing pressure to push back the March 29 date when the U.K. is slated to leave the EU.

Both the ruling Conservatives and the opposition Labour Party have been hit this week by defections from their more centrist lawmakers, most of whom want the U.K. to stay in the EU. Neither party has changed its stance on Brexit immediately as a result, but the splintering appears to make the arithmetic of getting a parliamentary majority for any sort of Brexit deal more complicated.

The risks of a no-deal Brexit were spelled out by Fitch Ratings Agency late Wednesday, which put the U.K.’s credit rating on “negative watch” – a preliminary step to a downgrade – saying that at a disorderly Brexit risks a severe recession.

Elsewhere overnight, the Australian dollar fell some 1% against the greenback after reports of a ban on coal imports by one of China’s biggest ports. The report illustrated the sensitivity of the Aussie to Chinese demand for its commodities. The kiwi also edged lower after the report.

And the South African South African rand hit a one-week high, recouping the losses it made Wednesday after the government announced a $4.9 bailout for stricken power company Eskom. The bailout was smaller than feared but comes at a time when the budget deficit is at its widest in 10 years.

-Reuters contributed to this report.

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