Euro modestly higher but gains capped by growth concerns

Investing.com - The euro was modestly higher against its major counterparts on Tuesday, as market sentiment improved but gains were limited as concerns over the outlook for economic growth in the euro zone weighed.

During European late morning trade, the euro was slightly higher against the U.S. dollar, with EUR/USD rising 0.18% to hit 1.3343.

Risk appetite was boosted after a report on Monday showed the U.S. manufacturing sector expanded more-than-forecast in March, while official data from China on Sunday showed that manufacturing activity in the world’s second largest economy jumped to an 11-month high last month.

But concerns over the outlook for the euro zone weighed on the single currency after official data confirmed that the bloc’s economy contracted by 0.3% in the final three months of 2011, unchanged from a preliminary estimate. Annualized gross domestic product contracted by 0.7% in the fourth quarter.

A separate report showed that producer price inflation in the euro zone rose more-than-expected in February, climbing 0.6%, slightly higher than expectations for a 0.5% gain.

Data on Monday showed that manufacturing activity in the euro zone remained in contraction territory for the eighth successive month in March, while a separate report showed that the bloc’s unemployment rate ticked up to a record high of 10.8% in February.

The single currency was also higher against the pound, with EUR/GBP adding 0.23% to hit 0.8331.

In the U.K., a report earlier showed that that the construction sector expanded at the fastest rate in 21 months in March as new orders jumped, indicating that the U.K. economy may avoid a recession.

The data came one day after a report showing that manufacturing activity in the U.K. expanded at the fastest rate in 10 months in March.

The euro was up against the yen and remained almost unchanged against the Swiss franc, with EUR/JPY easing up 0.15% to hit 109.48 and EUR/CHF dipping 0.02% to hit 1.2035.

In Japan, official data showed that the monetary base fell at an annualized rate of 0.2% in March after increasing by 11.3% the previous month, underlining concerns over the risk of deflation.

The shared currency was broadly lower against the Canadian, Australian and New Zealand dollars, with EUR/CAD climbing 0.30% to hit 1.3234, EUR/AUD advancing 0.62% to hit 1.2864 and EUR/NZD up 0.35% to hit 1.6233.

The Reserve Bank of Australia left interest rates on hold at 4.25% following its policy meeting earlier, but indicated that it may cut interest rates as soon as next month, amid concerns that the economy is now growing at a slower than average rate.

Earlier Tuesday, official data showed that Australian retail sales rose 0.2% in February, in line with expectations, after a 0.3% increase the previous month.

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Later in the day, the U.S. was to release official data on factory orders, while the Federal Reserve was to release the minutes of its March policy meeting.