The euro stood near two-month highs against the dollar and yen on Friday, having rallied for a second session on the back of a surge in German yields as fears of deflation in Europe eased just a little.
Data this week suggesting the euro zone might be pulling out of deflation sparked a rise in Bund yields, with the benchmark 10-year yield reaching 0.386 percent, up some 20 basis points in two days.
The euro last fetched $1.1210, not far from a two-month peak of $1.1267 scaled overnight, having clawed its way back from a 12-year low of $1.0457 struck in March, when the European Central Bank launched its quantitative easing scheme.
Against the Japanese currency, the euro climbed as high as 134.515 yen, its highest since early March.
Aside from positive euro zone economic indicators, the euro garnered strength from the dovish outcome of the Federal Reserve policy meeting this week, which all but dashed prospects for an early increase in U.S. interest rates.
"The euro could remain supported even if the rise in bund yields eases as the currency had been sold in excess of actual economic fundamentals," said Daisuke Karakama, market economist at Mizuho Bank in Tokyo.
Against such a backdrop, a series of upbeat U.S. indicators did little to slow the euro's advance against the dollar. Thursday's data showed a drop in U.S. jobless claims, a rise in consumer spending, wage gains and a jump in Midwest business activity.
The greenback fared better against the yen, supported by Treasury yields' rise in the wake of Thursday's upbeat U.S. data.
The dollar was up 0.3 percent at 119.69 yen, pulling away from a one-month low of 118.50 plumbed overnight.
Analysts at Citi noted that the euro and dollar were outperforming peers as rising German and U.S. yields were supporting both currencies.
"Neither USD nor EUR are particularly high beta, so any time that their yields are jointly viewed as attractive, the outflow from higher beta currencies will be substantial," said Steven Englander, global head of G10 FX strategy at Citi.
This could be one reason why commodity currencies, usually seen as riskier or high beta, were back under pressure.
The Australian dollar, which hit a three-month high of $0.8077 earlier in the week, has dropped back below 79 U.S. cents. It was further weighed by the prospect of an interest rate cut next week.
Debt markets now imply a 62 percent chance of a move next week, up from around 50-50 earlier in the week.
The Aussie reacted little to China's official Purchasing Manager's Index report that showed slowing growth in the country's services sector.
Market trading was expected to be somewhat choppy later in the day with many European markets closed for the May 1 Labor Day holiday. (Reuters)
Source: www.businessworld.ie
