The euro hit an 11-month high against the dollar today and extended gains versus the yen as Japan put more pressure on its central bank to ease monetary policy while chances of a euro zone rate cut faded.
An upbeat tone from the European Central Bank last week and waning worries about peripheral euro zone debt left room for further gains in the euro, traders and analysts said. It rose to a 13-month high against the safe-haven Swiss franc, while it traded firm near a 20-month peak against the yen.
The euro was up 0.2 per cent against the dollar at $1.3365, having earlier risen as high as $1.3404, its strongest since late February 2012, on buying by macro funds, traders said. Chartists said the euro's firm break above resistance at $1.33, a level it failed to breach in mid-December and again in early January, meant more gains were in store.
"We are seeing a positive environment for the euro and expect it to hit $1.35 in the three months," said Marcus Hettinger, global FX strategist at Credit Suisse, Zurich.
The euro's gains have accelerated after ECB president Mario Draghi last Thursday suggested an interest rate cut was off the agenda for now and pointed to signs of improvement in the euro zone economy and in financial markets.
That was in sharp contrast to Japan where prime minister Shinzo Abe said yesterday the central bank must set 2 percent inflation target as a medium-, not long-term, objective. This meant the central bank would have to print more yen to boost the economy, a factor that pushed the yen to a fresh 2-1/2 year low against the dollar.
Against the yen, the euro was up 0.3 per cent at 119.30 yen, having earlier hit 120.13 yen, its highest since May 2011. This came on top of a rise of more than 3 per cent last week and came despite output at euro zone factories falling for the third straight month in November.
"Given the correlation between the euro and equity markets, the euro should trade higher, towards $1.35 or $1.36, though levels between $1.35 and $1.40 start to look expensive and that's not what the euro zone needs right now," said Richard Falkenhall, currency strategist at SEB.
Mr Falkenhall said improvements in euro sentiment since the ECB announced a plan last year to buy the bonds of indebted countries was contributing to the trend of yen weakness, as previously the yen had gained on the back of euro zone worries.
Reuters