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 Concerns over the health of the European banking sector have also
weighed on the euro, and those worries deepened after Spanish
newswire Efe said on Wednesday at least 11 lenders had failed stress
tests run by the European Central Bank.
The ECB, which will publish the test outcomes for 130 banks on
Sunday, said final results had not yet been sent to the lenders
involved, and it could not comment on individual institutions.
The euro rose to $1.2671 <EUR=>, rebounding from a two-week low of
$1.2614 hit after data showed France's preliminary composite
purchasing managers' index for October falling to 48.0 from a final
reading of 48.4 in September. That was well into contractionary
territory.
The single currency recovered after data showed Germany's private
sector grew faster in October as manufacturing rebounded, suggesting
Europe's largest economy may be gaining momentum in the fourth
quarter.
The euro zone composite flash purchasing managers' index, based on
surveys of thousands of companies across the region and seen as a
good indicator of growth, rose to 52.2, above all forecasts in a
Reuters poll.
"The German numbers are promising and is a sign that things will not
deteriorate. The weak French numbers do not surprise, and net-net,
it does little to expectations that the ECB will have to step in
with further easing," said Richard Falkenhall, currency strategist
at SEB.
"We expect the euro to grind lower and hit $1.15 in a year's time.
That forecast factors in tightening by the Federal Reserve next year
and the ECB asset purchases, including buying of government bonds."
The euro had weakened this week after Reuters reported on Tuesday
that the ECB was considering buying corporate bonds on the secondary
market and may decide on the matter as soon as December.
NORWEGIAN CROWN RISES
The euro fell 0.5 percent against the Norwegian crown, after
Norway's central bank sounded less dovish after a policy meeting.
Earlier, Norges Bank kept interest rates unchanged at 1.5 percent as
expected and said that the recent fall in oil prices had increased
uncertainty.
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Susanne Galler, currency strategist at Jefferies, said that for
investors to turn bullish on the Norwegian crown, crude oil prices
needed to stabilise.
Norway is a big exporter of crude oil and the currency has a
relationship with oil prices. With crude prices dropping sharply in
the past few months, the crown has come under pressure.
The dollar remained on the back foot against a basket of major
currencies, trading at 85.699.
The dollar has lost ground in recent weeks as concerns about slowing
global growth and muted inflation prompted investors to trim bets
that the Fed will raise interest rates soon after an expected end to
its bond-buying stimulus later this month.
"Market players are hesitant to build positions ahead of next week's
Federal Reserve meeting, especially as officials have sent dovish
signals recently," said Junichi Ishikawa, market analyst at IG
Securities in Tokyo.
Earlier, a survey showed China's factory sector grew a shade faster
in October, but the details underscored a still-shaky economy.
The New Zealand dollar lost nearly 1 percent to $0.7856 in the wake
of softer-than expected inflation data that could give the Reserve
Bank of New Zealand room to further delay its next interest rate
hike.
(Additional reporting by Masayuki Kitano; Editing by Catherine
Evans)
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