© Reuters

(Bloomberg) — The euro rallied above $1.22 for the first time since 2018, advancing for the third day as stronger-than-expected economic data added to optimism the region’s recovery is gaining traction.

Europe’s shared currency climbed as much as 0.5% to $1.2212, a level unseen since April 2018, after a report showed that the euro area’s manufacturing output expanded faster than economists estimated. The services sector contracted less than anticipated. The euro’s strength also reflected broad dollar weakness ahead of the Federal Reserve’s policy decision on Wednesday.

The improved figures helped the currency extend gains from earlier in the week, which were fueled by hopes that the U.K. and the European Union are close to a Brexit trade deal. The euro has surged almost 9% this year, on track for its best performance since 2017 amid expectations that the monetary union will achieve greater fiscal integration as it implements a landmark recovery fund aimed at steering the region’s rebound from the coronavirus crisis.

“It was just a matter of time” before the euro broke through $1.22, said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank (DE:) AG (OTC:). “And now, with the strong purchasing managers’ indexes, this was a perfect reason to try out how much higher euro-dollar can be pushed until the ECB does comment on the exchange rate again after all.”

Gathering Optimism

Economic optimism in the euro area is building following the EU recovery fund deal, which for the first time will mean the bloc jointly issues debt, alleviating some of the strain from national balance sheets and damping any risk of a breakup. At the same time, an interest-rate cut by the ECB in the immediate future is seen as unlikely, further supporting the currency.

The euro was up 0.4% at $1.2200 as of 10:09 a.m. in London. It was little changed versus the at 90.28 pence. It’s risen 1% since the European Central Bank refrained from any verbal pushback against the exchange-rate’s gains at its meeting last week, even though the currency’s advance threatens to damp inflation in the region.

“There is little in the way of resistance for until 1.24-1.25,” said Lee Hardman, a strategist at MUFG.

©2020 Bloomberg L.P.


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