Euro rises broadly in London

The euro rose broadly on Thursday as above-forecast eurozone inflation cemented the case for higher interest rates from the European Central Bank, though analysts cautioned against a rapid rise in the currency. Traders said significant quarter-end and fiscal year-end flows were helping to boost the euro, at the expense of the dollar in particular.
Official eurozone estimates showed consumer prices jumped 2.6 percent year-on-year in March, up from 2.4 percent in February and more than market expectations. They supported comments from European Central Bank policymaker Lorenzo Bini Smaghi who on Wednesday implied the central bank's policy is to gradually raise interest rates. Markets see the tightening cycle starting in April.
"The euro has priced in a lot of good news so it's hard to see it moving rapidly higher, but it can definitely continue on the upside," said Raghav Subbarao, currency analyst at Barclays Capital. "The ECB wants to show they are concerned about inflation but there are clearly other risks and they have kept the full allotment of open market operations given concerns about financial stability."
Ireland later on Thursday announces the results of stress tests that are expected to signal the effective nationalisation of the entire financial system, but few analysts were expecting a major reaction from the single currency. "Ireland is not a big risk to the euro as there is no systemic risk thanks to the eurozone rescue fund. Confidence is being driven by the larger eurozone countries," said Manuel Oliveri, currency analyst at UBS in Zurich.
The euro rose 0.6 percent against the dollar to $1.4220, approaching its 2011 high of $1.4249. Traders cited demand from European central banks, while adding that a break of option barriers at $1.4250 would be needed for further momentum on the upside. The single currency hit a 10-month high versus the yen around 117.90 yen. The dollar came under broad selling pressure, falling roughly 0.5 percent against a currency basket. Despite the US currency's broad losses, it was flat against the yen at 82.80 yen, as the yen stayed on the backfoot versus most major currencies.
The dollar rose to a three-week high of 83.21 yen before running into selling by Japanese banks and foreign players along with some fiscal year-end yen demand from Japanese exporters. Strong offers were seen from 83.30 to 83.50, with more around 84.00. The Australian dollar hit a fresh 29-year high of $1.0362 after favourable retail sales and credit growth data.