The euro hit a four-month high against the dollar on Friday on expectations eurozone interest rates may rise next month, while investors waited to see whether strong US jobs data would offer the greenback some respite. The central forecast in a Reuters poll was for 185,000 new jobs to have been added to the economy last month, after an addition of 36,000 in January.
With the euro hovering just shy of $1.40, analysts looked to movements in US yields to drive the dollar after the jobs data, due at 1330 GMT. "We should see a better non-farm payrolls figure, but if US yields don't rise, it won't help the dollar," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich. "Interest rate differentials ... are playing in favour for the euro, so we could see a break above $1.40 any time now."
The euro stayed well bid after European Central Bank President Jean-Claude Trichet stunned investors on Thursday by saying a rate rise in April was a possibility. The euro edged up to $1.3978 on trading platform EBS, its strongest level since early November. Gains were capped, however, with traders citing a barrier at $1.40 and offers to sell the single currency looming just above there.
Analysts said the euro was poised for a move higher, though, as the ECB's announcement, which fortified the view the ECB will raise rates well before the Federal Reserve, had widened the gap between eurozone and US government bond yields. At the same time, Paul Robinson, head of European FX Research at Barclays Capital, said dollar risks were skewed to the downside heading into payrolls and that the US currency could face more selling than usual if the figure comes in weak.
"What makes today's nonfarm payrolls data more interesting is the very different views of the world held by the ECB and Federal Reserve," he said. The euro had support above its 200-week moving average around $1.3957, and a weekly close above that would pave the way for a move higher. Near-term resistance was seen around $1.3980, however, the 78.6 percent retracement of the euro's down-move from November.
The euro also hit a five-month high against the yen of 115.55 yen, according to Reuters data. The dollar was up 0.3 percent at 82.69 yen, but was at 76.493 against a currency basket, little changed on the day and hovering near a four-month low hit on Thursday.