LONDON: The yen gained against the euro and dollar on Thursday as a rebound in oil prices and European stock markets failed to convince currency markets that the rough start to 2016 was over.
Sterling gained more than half a percent on positive signs ahead of 'now or never' EU talks aimed at reaching a deal with Britain that will help keep it in the 28-country bloc in a referendum later this year.
The Australian dollar recovered most of the losses it incurred after weak employment data bolstered the case for more interest rate cuts there, while the Norwegian crown and Canadian dollar both gained on the back of a 3 percent rise in crude.
But the yen, the chief beneficiary of the weakest opening to a year for stock markets since the aftermath of the 2008 financial crisis, was still 0.3 percent higher on the day at 113.80 yen per dollar and up 0.6 percent at 126.14 yen per euro.
"We've had a fair bit of a relief rally this week but markets are still pretty cautious," said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UFJ in London.
"It looks like we'll need a bigger recovery in stocks and sentiment to reverse the gains for the yen."
A bigger than expected rise in Australian unemployment added to signs of the global weakness that led to the poorest start to a year for stock markets since the 2008 crash. Expectations are growing of further easing by central banks around the world, making it difficult to pick the currency winners.
China's yuan, one source of global financial nerves in January, inched lower after data showed producer prices sank 5.3 percent last month. It remained above the level reached against the dollar when the Lunar New Year holiday began two weeks ago.
"For currencies like the Aussie, at least some stabilisation of oil prices is a positive, but this is only a relatively short-term effect," said Ulrich Leuchtmann, head of foreign exchange strategy with Commerzbank in Frankfurt.
"I'm sceptical about global central banks' ability to raise inflation, and that suggests they will continue to surprise on the expansionary side. A new round of policy easing is likely."
Expectations that the Reserve Bank of Australia would be pushed to cut rates drove the Aussie 0.7 percent lower in early trade in Europe. It was down 0.3 percent at $0.7156 by 1250 GMT.
Sterling was buoyed by European Commission President Jean-Claude Juncker said he was "quite confident" that European leaders would reach a deal with Britain.
Bank of England Deputy Governor Jon Cunliffe also described market moves signalling that interest rates would only rise by the end of the decade as unwarranted.
The key issues for markets are whether British Prime Minister David Cameron comes away with a deal, whether he can successfully describe it as a "win" to British eurosceptics, and whether he swiftly sets a date for a vote.
Sterling rose around half a percent to $1.4360 and 0.8 percent to 77.20 pence per euro.
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