Euro rallies in Asia

The euro's rally against the dollar took a breather on Thursday but it touched a fresh five-month high against the yen, after the head of the European Central Bank played down the impact of higher market rates and triggered a spike in German yields. Cautious optimism that cash-strapped Greece was not about to default on its debt also helped the common currency.
Emerging from late-night talks with senior EU officials, Greek Prime Minister Alexis Tsipras declared that Greece was close to a deal with its creditors and that Athens would make a payment due to the IMF on Friday. Also in focus on Friday, the US nonfarm payrolls report will provide another gauge of the strength of employment conditions and clues to the possible timing of the US Federal Reserve's next interest rate hike. The report is expected to show 225,000 jobs created in May, according to a Reuters poll of economists.
"As per usual, the pre-payrolls price action is pretty quiet, and we can expect more of the same, not withstanding any major developments on the Greek front," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong. "Greek headline risk remains acute in the market. It's really lying in wait for any further developments on that front, though most of the headlines we've had in the last 24 hours look rather conciliatory and it suggests that a positive outcome is likely."
The euro climbed as far as $1.1285 on Wednesday, reaching its highest since May 19. It rose 3-1/2 US cents over two short days, which was its biggest gain since January 2011. It was last slightly lower on the day at $1.1267. Against the yen, the euro's uptrend remained intact, and it powered to 140.37, its loftiest level since January 13. It was last up about 0.2 percent on the day at 140.31 yen, well above last week's trough of 133.10.
The euro's rally coincided with a sharp spike in German Bund yields. The benchmark 10-year yield soared 34.7 basis points on Tuesday and Wednesday - a magnitude not seen since October 1998. Higher German yields can make the euro less attractive as a funding currency for carry trades, in which investors borrow funds to invest in higher-yielding currencies. This compelled some investors to unwind bearish euro positions.
The resurgent euro dragged down the dollar index, which slid to a near two-week low of 95.213 on Wednesday. It last stood at 95.375 in Asian trade, down about 0.1 percent on the day. The dollar firmed on the day against the yen, edging up about 0.2 percent to 124.47, not far from a 12-1/2-year peak of 125.07 scaled on Tuesday. The Australian dollar, which had been one of the best performers this week thanks to a confluence of local factors, skidded about 0.8 percent to $0.7724, after downbeat data revived expectations that the Reserve Bank of Australia might ease further.