NEW YORK: The euro fell against the dollar on Thursday as uncertainty surrounding the US job market overshadowed favorable demand at a Spanish bond sale.
The euro zone common currency rose to a five-month high against the yen after Spain sold more debt than it planned and its funding costs fell, causing its bond yields to fall as views on the country, which hung on to its investment-grade credit rating earlier this week, improved.
But as the US session opened, data showed the number of Americans filing new claims for unemployment benefits rose last week, reversing a sharp decline seen in the prior week but still pointing to a labor market that is only slowly healing.
"The miss in weekly jobless claims undermines some of the recent risk appetite seen in markets," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "It dashed some of the recent optimism."
The euro rose to 104.12 yen, its strongest since early May and remained higher on the day, last trading at 103.62 , up 0.1 percent.
Against the dollar, the euro fell 0.2 percent on the day to $1.3087, still within striking distance of Wednesday's one-month peak of $1.3139. Traders reported large option expiries at $1.3100 which may influence trade, keeping the euro close to that level.
BAILOUT REQUEST
"The easing of Spanish yields should provide a double boost to the Iberian economy as it decreases funding costs while at the same time allowing the government to make smaller cuts in fiscal spending," said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.
Some US$4.725 billion in euros changed hands using Reuters Dealing on Thursday.
Still, investors continue to anticipate Spain will request a bailout in the coming weeks, prompting the European Central Bank to step in and buy its bonds, which would also lift the euro.
At the same time, euro bids from sovereign investors reported at $1.3080 were expected to limit any falls in the currency.
"We are expecting some more upside in the euro as investors seem to get comfortable with the timeline about when Spain will seek a bailout and the ECB's bond buying will be triggered," said Beat Siegenthaler, currency strategist at UBS in London.
A raft of data from China was either in line with or better than expectations, helping the euro and riskier assets. Growth in the third quarter was 7.4 percent from a year earlier, in line with a Reuters poll.
The dollar rose to a two-month peak against the yen of 79.45 yen after a survey released on Thursday showed factory activity in the US mid-Atlantic region grew in October, snapping five months of contraction.
The US currency last traded up 0.3 percent at 79.18 yen. The Japanese currency has also been under pressure on expectations the Bank of Japan will announce fresh stimulus.
The higher-yielding Australian dollar hit a three-week high of $1.0412.
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