(Updates with ZEW survey details, refreshes prices)
By Amanda Cooper
LONDON, Feb 21 (Reuters) - The dollar held near six-week
highs on Tuesday, as the euro came under pressure after data
showed euro zone manufacturing activity deteriorated this month,
although a rebound in the more inflation-sensitive services
sector kept losses in check.
The pound headed for its largest one-day gain in five weeks
against the euro, after a surprisingly strong read of UK
business activity.
The euro has been struggling against the dollar in
particular over the past couple of weeks, after strong U.S.
labour data and signs of persistent inflation have raised the
chances that U.S. interest rates will rise further than many
previously anticipated.
S&P Global's flash Composite Purchasing Managers' Index
(PMI) for the euro zone, seen as a good gauge of overall
economic health, rose to its highest in nine months.
An index of service sector activity rose to its highest
since June, while manufacturing declined at a sharper pace this
month, according to Tuesday's survey.
"Certainly the manufacturing numbers are disappointing, but
what I would say is the services numbers are reasonably
constructive," CIBC Capital Markets global head of currency
strategy Jeremy Stretch said.
Wage inflation is typically longer-lasting in the services
sector and robust activity there would suggest the European
Central Bank might be more likely to raise interest rates -
thereby supporting the euro, he said.
The euro was last down 0.3% on the day against the dollar at
$1.0649. It has lost nearly 2% in value against the U.S.
currency in February so far. But this is something of an
outlier. Against the Japanese yen , it has risen
1.5%, while against the pound it's flat.
The U.S. dollar index has gained nearly 2% so far in
February, putting it on track for potentially its strongest
monthly performance since September's 3.2% rally. It is
currently trading around 104, below Friday's six-week high of
104.67.
German investor sentiment recovered more than expected this
month, thanks to higher profit expectations in energy- and
export-related sectors, according to a survey on Tuesday by the
ZEW economic research institute.
"The data momentum has been positive of late but it’s going
to be hard for the next few months to assess where we should be
at this stage of the cycle," Deutsche Bank strategist Jim Reid
said.
"There has no doubt been big improvements from gas price
falls and loosening of financial conditions but we’re yet to see
anything close to the full lag of monetary policy filter through
to the U.S. and Europe," he said.
U.S. manufacturing data is due later on Tuesday, while
Friday's core personal consumption expenditures index - the
Federal Reserve's preferred gauge of inflation - could shed more
light on what might happen with interest rates this year.
Against the yen, the dollar rose 0.3% to 134.72 .
Meanwhile, sterling reversed course and rose 0.5%
against the dollar to $1.2098. It rallied almost 0.9% against
the euro to 88.05 pence, set for its biggest one-day
gain since mid-January after data showed UK business activity
was far healthier than expected in early February.
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(Additional reporting by Tom Westbrook in Singapore; Editing by
Barbara Lewis, Susan Fenton and Chizu Nomiyama)
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