Euro Climbs to Three-Week High as QE Bets Pared; Pound Advances

Frankfurt (May 1)  The euro climbed against the dollar, reaching the strongest level in almost three weeks, amid speculation investors were reducing bets on the European Central Bank unveiling an asset-purchase plan to boost price growth.

The pound climbed to the highest level in four years as a gauge of U.K. manufacturing output rose more than economists forecast. Australia’s dollar gained for a third day after data showed Chinese manufacturing picked up in April. A measure of expected currency swings fell to the lowest since 2007. Europe’s shared currency rose yesterday as a report showed euro-region inflation accelerated and amid speculation Portugal will exit its bailout program without a financial backstop.

“Many investors were shorting the euro on anticipation of ECB stimulus,” said Neil Jones, the head of hedge-fund sales at Mizuho Bank Ltd. in London. “That’s looking very unlikely at this time and the market is cutting euro shorts. Meanwhile, Mediterranean Europe is performing well. The move is down to sentiment shift.” A short position is a bet an asset will decline.

The euro gained 0.1 percent to $1.3876 at 7:04 a.m. New York time after advancing to $1.3889, the strongest since April 11. It jumped 0.4 percent yesterday. The common currency climbed 0.1 percent to 141.88 yen. The dollar was at 102.24 yen after falling 0.4 percent yesterday.

Germany, Italy, South Korea, China and Switzerland are among markets closed for public holidays today.

Inflation Rate

The European Union’s statistics office in Luxembourg said yesterday the euro region’s annualized consumer-price inflation rate was 0.7 percent last month, compared with a more-than four-year low of 0.5 percent in March.

The Portuguese government will opt for a clean exit from its bailout program, Diario Economico reported yesterday, without saying how it obtained the information. Parliamentary Affairs Minister Luis Marques Guedes said this week a strategy will be announced by the end of the day on Sunday.

ECB President Mario Draghi said last week the institution might start broad-based asset purchases if the inflation outlook worsens. The Federal Reserve yesterday said it was paring its monthly bond buying to $45 billion from $55 billion, while Bank of Japan policy makers retained plans to increase the monetary base by up to 70 trillion yen annually. ECB policy makers’ next announcement is due on May 8.

Willing Markets

“In the short term it is going to be very difficult for the euro to weaken,” Andreas Utermann, who helps oversee the equivalent of $479 billion as global chief investment officer at Allianz Global Investors, said in London on Bloomberg Television’s “On The Move” with Francine Lacqua. “The ECB, of all the central banks, despite all their loose monetary policy are still not as aggressive in terms of quantitative easing as the Bank of Japan and the Fed. The markets are willing the ECB to show if they can do more.”

Sterling gained for a sixth day versus the dollar as Markit Economics said its purchasing managers index advanced to 57.3 in April, from 55.8 the previous month. The median estimate of analysts in a Bloomberg News survey was for a reading of 55.4. A level above 50 indicates expansion.

The pound rose 0.2 percent to $1.6905 after climbing to $1.6920, the highest since August 2009.