The euro leaped against the dollar on Thursday as a solid sale of Spanish debt assuaged funding fears and calming comments from European Central Bank President Mario Draghi prompted investors to pare positions against the common currency. With net short positions at their largest ever, according to the latest data, the euro has been prone to bouts of short covering.
While it showed little reaction to the ECB keeping rates on hold at 1 percent, Draghi's remarks at a news conference had investors scrambling to cover short positions. The euro/dollar reacted positively to Draghi's comments with the pair squeezing higher through the $1.2800 level.
In late morning New York trade the euro was 0.9 percent higher on the day at $1.2812, having touched a session high of $1.2838, according to Reuters data. That is up sharply from a 16-month low of $1.2661 hit on Wednesday. Euro/dollar gains pushed the dollar 0.6 percent lower versus a currency basket to 80.828 but it was within sight of 81.49 hit on Wednesday, its highest in 16 months. Against the yen, the dollar was down 0.2 percent at 76.74.
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