The euro fell on Friday following a new bout of market jitters over the eurozone's sovereign debt problems, while the dollar struck a one-month high against the yen after data underscored recovery in the US jobs market. US Treasury yields have spiked this month, shoring up the dollar while improving data has supported the view that economic recovery in the United States is on more durable ground.
Data on Thursday showed new applications for unemployment benefits dropped to a 2-1/2 year low last week, consistent with other indicators suggesting a strengthening labour market. "The focus is on interest rates and the US has lagged behind most especially the eurozone," said Paul Robson, currency strategist at RBS Global Banking.
The dollar index, which measures the greenback's performance against a basket of currencies, was up 0.5 percent at 78.640. The dollar touched its highest level in a month at 83.60 yen to trade up 0.3 percent on the day. Traders highlighted a chunky dollar/yen expiry for Friday's New York cut at 84.00 yen, with more sizeable interest at the same level also reported to come on Monday.
The dollar also benefited from safe-haven flows after Egypt's President Hosni Mubarak refused to step down as had been expected, keeping alive the risk of a possible showdown between protestors and the military and more political chaos in the Middle East.
The euro remained under pressure against the dollar after falling the previous day, weighed down by renewed jitters about the eurozone debt crisis and waning expectations that the European Central Bank will raise interest rates soon. The euro shed 0.5 percent to trade at $1.3518, falling below its 100-day moving average around $1.3541. Technical analysts say a daily close below this level for the first time since January 17 could see further downside.
Next support was seen at this week's low just ahead of $1.3500, where an option barrier was reportedly being protected by strong bids. Traders said the European Central Bank stepped in to buy Portuguese bonds after yields on the country's debt hit euro-era highs.. The latest spike in yields has sparked fresh concerns about funding costs in the euro zone periphery.
"Portugal faces a huge round of debt redemptions in April and with current yields on Portuguese debt holding just below post-euro creation highs it is not unreasonable to fear that Portugal may need some sort of financial support this spring," said Jane Foley, senior currency strategist at Rabobank. The Australian dollar lost 0.6 percent to $0.9979, having come under pressure after Reserve Bank of Australia Governor Glenn Stevens said it was reasonable to expect rates to be on hold for some time.