Euro rebounds in London

The euro rebounded on Friday on a media report that quoted a senior European Central Bank official as saying that interest rates could be raised, although renewed debt and money market tensions were likely to cap gains. Traders cited a Bloomberg report which quoted ECB policymaker Lorenzo Bini Smaghi saying the central bank will be ready to tighten policy as price pressures mount, as the euro's driver.
The euro reversed earlier losses and rose 80 pips against the dollar to hit a session high of $1.3645 and was last up 0.2 percent on the day. The currency was also supported by talk that ECB was buying Portuguese government bonds. "The euro is moving up on those Bini Smaghi comments but the overall picture remains a bit negative," said Ian Stannard, senior currency strategist at BNP Paribas. "Any move up will be short lived as the market focuses on debt concerns and any moves to stall find a solution to the eurozone's problems."
Sentiment towards the euro has soured in recent sessions due to concerns that eurozone policymakers have made little headway in solving the year-long debt crisis, and on increasing worries that Portugal may seek a bailout by April. The yield on five-year Portuguese government bonds hit a fresh euro lifetime high on Friday.
Also weighing on the euro was data which showed emergency overnight borrowing from the ECB at exceptionally high levels on Friday, although it was not clear why borrowing was so high. "The market is again worried about financial stress within the euro and a bank getting in trouble," said Adam Cole, global head of currency strategy at RBC.
The Australian dollar briefly hit a session low against the US dollar after China's central bank raised its bank reserve requirement for the second time this year, following up on an interest rate rise earlier this month as it ratchets up its monetary tightening campaign. The Australian dollar initially fell around 20 pips to a session low of $1.0088 after China announced it will raise reserve requirements, before recovering. It was last trading at $1.0105, down 0.1 percent on the day.
"The market has now accepted that rate hikes, whether through benchmark lending rates or reserve requirements are likely to be a regular occurrence and as such, the move should fade over the next few hours," said Chris Walker, currency strategist at UBS. The Swiss franc hit its highest against the euro in two weeks at 1.2895 per euro. This week has seen broad gains in the Swiss currency and the euro and the dollar are poised to end the week lower.