NEW YORK: The euro hit a five-week high against the dollar and the yen on Thursday as solid US economic data and signs of ultra-low interest rates for years to come from the US Federal Reserve stoked appetite for riskier assets.
New US claims for unemployment benefits rose last week, but the underlying trend continued to point to improving labor market conditions. Data also showed that new orders for US manufactured goods rose more than expected in December, while a gauge of business spending plans rebounded.
The data came the day after Fed policymakers pushed back the likely timing of an eventual interest rate hike until late 2014, 18 months later than previously suggested. Federal Reserve Chairman Ben Bernanke also said the US central bank was ready to offer the economy additional stimulus.
"In the afterglow of the Fed's decision yesterday to keep interest rates low for a longer period of time, today's generally positive US data gave investors a fresh reason to move into riskier assets," said Joe Manimbo, market analyst at Travelex Global Payments in Washington.
The euro advanced to a session high of $1.3176 after the US data were released, trimming gains to trade most recently at $1.3152. Against the yen, the euro rise as high as 102.20 yen before trading more recently at 102.07 yen. Those session highs marked the euro's strongest position against the US and Japanese currencies in about five weeks.
Traders also said the euro was boosted by media reports that Greece's private creditors were willing to lower their "final offer" of a 4 percent interest rate on new Greek bonds in order to clinch a deal in time to avert a messy default.
"The markets are trading in a way that they believe a disorderly Greek default is unlikely," said Alan Ruskin, head of G10 currency strategy at Deutsche Bank in New York.
Still, he noted, "we've seen so many false alarms in terms of resolution."
Higher-yielding commodity currencies also outperformed as the prospect of continued easy US monetary policy and more cash injections by the European Central Bank supported investor risk appetite.
The Australian dollar hit a three-month high of US$1.0688, while the New Zealand dollar traded as high as US$0.8232, its highest level since October 28.
The dollar gave back some of its recent gains against the yen, slipping to 77.60, according to Reuters data. Strong technical resistance was cited around the 200-day moving average now at 78.33 yen.
GREEK UNCERTAINTY
Risk appetite was further supported by Italy selling the top planned amount of 5 billion euros of zero-coupon and inflation-linked bonds. The auction saw sound demand ahead of a crucial sale of five- and 10-year paper on Monday.
Some analysts said although the dollar was likely to remain soft against perceived riskier currencies, investors would be wary of pushing the euro too high given concerns about the region's debt crisis.
"The main surprise was they (the Federal Reserve) were unequivocally dovish in their statement which suggested they do not need data to deteriorate to justify easing monetary policy further," said Michael Sneyd, FX strategist at BNP Paribas.
"We think this risk rally will last a bit longer, particularly in the commodity currencies. Against the euro there is still the overhang that we do not have any resolution to a Greek PSI agreement, euro/dollar is probably going to top out."
With time slipping ahead of a March deadline when Greece faces major bond redemptions, the top negotiator for private creditors, Charles Dallara, was resuming talks with officials on Thursday, both sides said.
Despite the latest bounce, analysts said the overall outlook for the euro was still shaky. Morgan Stanley strategists said in a note that any corrective rebound into the $1.3230 area in coming days should be used as an opportunity to re-establish bearish positions targeting a fall to $1.2390.
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