Euro rises in London

The euro rose on Thursday as investors geared up for the European Central Bank to signal another rate hike in July that would boost the single currency's yield differentials, leaving it poised for further gains. The euro reacted little to the ECB leaving rates on hold as expected, but it could vault past suspected options barriers at $1.4700 if President Jean-Claude Trichet uses the key phrase "strong vigilance" on inflation in his 1230 GMT news conference.
Gains were expected to be capped, however, given the market is already positioned for a hawkish statement and the focus would then switch back to Greece's debt crisis, although analysts said the euro could fall sharply if the ECB flags a slower pace of rate hikes.
Halpenny said yields would remain important for the euro, pointing out that the daily correlation between euro/dollar and the two-year eurozone/US swap spread is very strong, at 0.95 over both one year and six months. The euro was last up 0.3 percent against the dollar at $1.4620, helped by bargain hunting from model funds and speculators. A break above that level would open the door for the euro to test resistance around $1.4940, the May 4 high, though some warned that investors may be inclined to take profits above $1.4700.
The continued possibility of Greek debt restructuring, which was raised again on Wednesday in a letter from German finance minister Wolfgang Schaeuble, could see the euro come under pressure after the ECB news conference. On the downside, traders said support was seen at $1.4550, the 50 percent retracement of the May 4 to 23 fall. A break below there could bring the 55-day moving average, currently at $1.4389, into view.
The single currency also rallied against the Swiss franc, rising 0.6 percent at 1.2265 francs. Traders cited a Swiss bank and US investment bank as buyers. ECB President Jean-Claude Trichet is expected to use higher staff inflation forecasts at the news conference to justify the case for monetary tightening in July.
Against sterling, the euro was last up 0.1 percent at 88.99 pence after the Bank of England kept rates on hold at record lows as widely expected. The dollar recouped some losses against the yen having slumped to a one-month low of 79.69 yen on Wednesday. It was last up 0.1 percent at 80.02 yen, running into selling by model funds in the European session.
Against a basket of currencies the dollar was down 0.2 percent at 73.781. Investors will look to the release of US initial jobless claims at 1230 GMT for further clues on the state of the world's largest economy after a recent slew of lacklustre data. The Australian dollar fell to a two-week low of $1.0563 on disappointing employment data and last traded down 0.2 percent at $1.0595. New Zealand's central bank held rates steady on Thursday but set the stage for higher rates, saying hikes were needed as the economy rebounds after the Christchurch earthquake. This buoyed the New Zealand dollar which was last up 0.8 percent at $0.8266.