By Bradley Davis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The euro and other higher-yielding currencies strengthened in Monday morning trading, after the U.S. reported a better-than-expected improvement in the manufacturing sector.
The U.S. manufacturing PMI improved to 55.7 in October, the Institute for Supply Management announced Monday, from 52.6 in September. Any reading better than 50 indicates an expansion in manufacturing activity. Economists had expected the number to come in at 53.3.
The U.S. joined China, the euro zone, the U.K. and Sweden, which overnight also announced improved manufacturing activity, sending the euro and other higher-yielding currencies higher in European trading and early in New York.
The euro jumped from $1.4779 just before release of the manufacturing data to beyond $1.48 after its release, and continued to extend its gains to an intraday high of $1.4840, though it has given back some of those gains.
In morning New York trading, the euro was at $1.4834, from $1.4727 late Friday, according to EBS via CQG. The dollar was at Y90.48, from Y90.07, while the euro was at Y134.22, from Y132.63. The U.K. pound was at $1.6428, from $1.6432. The dollar was at CHF1.0174, from CHF1.0253.
The Dollar Index, a trade-weighted basket of six currencies, was at 75.964, from 76.347 late Friday.
The positive manufacturing data could cement the reversal of last week's losses in higher-yielding currencies and assets, such as U.S. stocks, which lost more than 2.5% on Friday, but opened higher Monday in New York.
Also encouraging gains in stocks and higher-yielding currencies was the Monday release of U.S. September pending home sales, which increased 6.1% from August, according to the National Association of Realtors, much stronger than the 0.7% economists had expected.
"It's amazing the difference a weekend can make, and once again, as we situate ourselves this morning, it's as if nothing ever happened last week," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn., of last week's market swoon.
If the euro and other higher-yielding currencies hold on to their gains throughout the New York session, "it will tell the story of who's in control, and what sentiment is going to dominate" the recently volatile markets, said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto.
Gains in higher-yielding assets could be muted, though, as investors position themselves cautiously ahead of other key events this week, including meetings of the Reserve Bank of Australia, the Bank of England, the European Central Bank and the Federal Reserve.
If the European Central Bank keeps key interest rates on hold, as is expected, and the Fed also leaves rates unchanged, two major "risk events" that could trip up a rally in higher-yielding assets will have been avoided, removing key roadblocks to the rally.
Friday's release of monthly U.S. non-farm payroll numbers, which are expected to improve, also could help the euro and other higher-yielding assets; if the jobs numbers disappoint, another wave of risk aversion could wash over markets, benefiting the dollar.
"In many ways, it seems that global markets have reached a key juncture," said Steven Barrow, head of G-10 strategy at Standard Bank in London.
Clarity from central banks, along with this week's economic data, should go a long way in determining the near-term direction of currency markets, Barrow said.
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