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London - The euro rose to a three-week high against a weaker dollar on Wednesday, helped by lower euro zone peripheral bond yields, strong company earnings and with the U.S. central bank expected to keep interest rates ultra-low.
However, traders expected gains in the euro to be limited as the currency remained vulnerable to budget problems and political uncertainty in several euro zone countries.
The dollar hit its lowest in three weeks versus a currency basket as traders expected the Federal Reserve to restate its intention to keep rates near zero throughout 2014 and possibly hint at more easing, especially after recent weaker jobs data.
The euro rose as high as $1.3237 on the EBS trading platform, supported by relief as successful debt auctions on Tuesday sent yields on Dutch, Spanish and Italian bonds lower. Equity market gains after strong earnings from Apple, encouraging investors to take on more risk, also helped.
“Strong earnings yesterday, support for peripheral euro zone bonds, plus the fact that the market is extremely short of euro/dollar should be supportive for the euro,” said Arne Lohmann Rasmussen, head of currency research at Danske Bank in Copenhagen.
“Also, the overall message from the FOMC will be that rates will be on hold for quite a long time and if the economy slows they will step in (with more easing).”
The dollar index dropped as low as 79.038 before a Fed statement and accompanying news conference later on Wednesday.
However, some analysts said a more hawkish statement, pointing to improvements in the economy and dimming chances of more stimulus, would come as a surprise and could give the dollar a strong boost.
The German government sticking to its growth forecasts and backed the European Central Bank in returning to a “normal mode” of monetary policy also benefited the euro.
This offset a sale of German 30-year bonds that was technically uncovered as record low yields dampened demand for the safe-haven paper.
“Euro/dollar is gradually drifting lower but not as quickly as many in the market thought, possibly because peripheral yields haven’t risen too much,” said Paul Robson, currency strategist at RBS.
Sterling falls
Sterling fell after data unexpectedly showed the UK economy slid into recession after contracting during the first quarter.
This curbed demand for the UK currency, which has attracted strong support recently as an alternative to the euro during heightened concerns about budget problems in Spain and other peripheral euro zone countries.
The euro rose 0.5 percent against the pound. The risk-sensitive Australian rose 0.2 percent at $1.0330, supported by firmer equities.
The dollar, which also fell to a three-week low versus the Swiss franc, weakened 0.2 percent against the low-yielding Japanese yen to 81.17 yen, though it stayed above the previous session’s trough of 80.86 yen.
Analysts said the yen could come under pressure as market players position for a Bank of Japan meeting on Friday, when it is expected to increase asset purchases by up to 10 trillion yen ($123 billion).
However, traders expected gains in the euro to be limited as the currency remained vulnerable to budget problems and political uncertainty in several euro zone countries.
The dollar hit its lowest in three weeks versus a currency basket as traders expected the Federal Reserve to restate its intention to keep rates near zero throughout 2014 and possibly hint at more easing, especially after recent weaker jobs data.
The euro rose as high as $1.3237 on the EBS trading platform, supported by relief as successful debt auctions on Tuesday sent yields on Dutch, Spanish and Italian bonds lower. Equity market gains after strong earnings from Apple, encouraging investors to take on more risk, also helped.
“Strong earnings yesterday, support for peripheral euro zone bonds, plus the fact that the market is extremely short of euro/dollar should be supportive for the euro,” said Arne Lohmann Rasmussen, head of currency research at Danske Bank in Copenhagen.
“Also, the overall message from the FOMC will be that rates will be on hold for quite a long time and if the economy slows they will step in (with more easing).”
The dollar index dropped as low as 79.038 before a Fed statement and accompanying news conference later on Wednesday.
However, some analysts said a more hawkish statement, pointing to improvements in the economy and dimming chances of more stimulus, would come as a surprise and could give the dollar a strong boost.
The German government sticking to its growth forecasts and backed the European Central Bank in returning to a “normal mode” of monetary policy also benefited the euro.
This offset a sale of German 30-year bonds that was technically uncovered as record low yields dampened demand for the safe-haven paper.
“Euro/dollar is gradually drifting lower but not as quickly as many in the market thought, possibly because peripheral yields haven’t risen too much,” said Paul Robson, currency strategist at RBS.
Sterling falls
Sterling fell after data unexpectedly showed the UK economy slid into recession after contracting during the first quarter.
This curbed demand for the UK currency, which has attracted strong support recently as an alternative to the euro during heightened concerns about budget problems in Spain and other peripheral euro zone countries.
The euro rose 0.5 percent against the pound. The risk-sensitive Australian rose 0.2 percent at $1.0330, supported by firmer equities.
The dollar, which also fell to a three-week low versus the Swiss franc, weakened 0.2 percent against the low-yielding Japanese yen to 81.17 yen, though it stayed above the previous session’s trough of 80.86 yen.
Analysts said the yen could come under pressure as market players position for a Bank of Japan meeting on Friday, when it is expected to increase asset purchases by up to 10 trillion yen ($123 billion).
