* Euro up as markets bet on earlier ECB rate hike
* Dollar struggles, index hits lowest since Nov
* Aussie at 4-wk high vs dollar, sterling at 2-1/2 mth high
(Adds comments, updates prices)
By Naomi Tajitsu
LONDON, Feb 1 (Reuters) - The euro rallied to its highest
against the dollar in more than two months on Tuesday, boosted
by signs that increasing inflation pressures will prompt a much
faster rise in euro zone than U.S. interest rates.
The Australian dollar also hit a four-week high against the
dollar, buoyed by upbeat central bank comments, while strong UK
data lifted sterling to a 2-1/2 month maximum, driving the U.S.
currency to its lowest since early November against a basket of
currencies.
Traders said demand from Middle Eastern investors helped
lift the euro, while Asian sovereigns were also seen buying back
euro positions sold earlier in the day, as well as buying
Australian dollars.
Investors now widely expect the Federal Reserve to lag far
behind other central banks -- notably the European Central Bank
and the Bank of England -- in raising interest rates.
"Major currencies are ganging up on the dollar at the
moment. The euro, Aussie and sterling all have their own
independent reasons for rising which are all anchored to signs
of stronger growth," said Gavin Friend, currency strategist at
nabCapital.
"The question now is whether euro/dollar can make a break
above the $1.37/1.38 area and establish some support there".
The euro <EUR=> rose as high as $1.3776, its strongest since
late November, before edging back to $1.3737, up 0.4 percent on
the day.
Some easing in concern over political unrest in Egypt helped
the single currency as did a fall in Germany's jobless rate and
strong final readings of purchasing managers' surveys,
supporting the view the overall euro zone recovery is
progressing. [] []
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For link to German PMI data []
For link to euro zone PMI data []
For link to UK PMI data []
Graphic on global inflation http://r.reuters.com/wuz46r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
HAWKISH ECB
In the wake of Monday's above-forecast euro zone inflation,
the PMI surveys also showed rising price pressures, adding to
expectations that European Central Bank President Jean-Claude
Trichet will keep a hawkish tone on Thursday. []
Implied interest rate futures <ECBWATCH> suggest a nearly 80
percent possibility the ECB will raise rates by 25 basis points
in August from the current record low of 1.0 percent.
Speculation that rates will rise has kept the two-year yield
spread between German <DE2YT=TWEB> and U.S. government bonds
<US2YT=RR> at around 80 basis points, its widest in two years.
"Relative rate spreads are still favouring the euro to the
dollar," said John Hydeskov, currency strategist at Danske.
The euro broke above $1.3740, around the 61.8 percent
retracement of its November-January fall, which technical
analysts said provided support and may open the way to $1.40.
The U.S. currency <JPY=> slipped to a four-week low around
81.47 yen, also helping to push the dollar index <.DXY>, which
tracks the U.S. currency's value against a basket of other
currencies, as low as 77.294, its weakest since early November.
AUSSIE RALLY
The Australian dollar <AUD=D4> rallied 1 percent on the day
to a four-week high of $1.0080 after the country's central bank
ended its monthly policy meeting with a generally upbeat
assessment of the domestic and global economy. []
Sterling <GBP=D4> jumped to a 2 1/2-month high of $1.6143
after UK manufacturing PMI hit a record high in January, adding
more evidence that the sector is expanding while price pressures
build, feeding the argument for a UK rate rise by mid-year.
"Markets are pricing in more chances of rate hikes and there
is little to undermine sterling at the moment," said Adrian
Schmidt, FX strategist at Lloyds TSB.
The Swedish crown also rallied, knocking the euro
<EURSEK=D4> to a 10-year low of 8.786 crowns, after an
above-forecast Swedish purchasing managers' survey.
(Additional reporting by Jessica Mortimer and Anirban Nag;
editing by Patrick Graham)
