The euro fell further against the dollar in thin trade on Friday after steep losses the previous day, as markets positioned for a key US jobs report. The euro dipped below 1.4500 after falling nearly 2 percent on Thursday to $1.4510, with further falls in oil prices leaving investors wary of buying back riskier assets.
But the euro was expected to remain supported by expectations euro zone rates would continue to rise faster than US ones, as the European Central Bank tries to tame high inflation. "We've had a healthy correction in euro/dollar, but I don't think this is a sea change in sentiment and wouldn't expect it to move much below $1.45," said Paul Robson, currency strategist at RBS.
Market participants saw limited room for euro gains, however, and sovereigns were said to be looking to take profits after buying at lower levels, with offers seen at $1.4580-85. The euro also faced resistance at its 21-day moving average around $1.4576. The euro fell sharply on Thursday after ECB President Jean-Claude Trichet did not signal a June rate hike. Analysts said this showed investors had become overly bullish about the eurozone rates outlook and they were forced to pare back long euro positions.
The euro gained some support early on Friday after ECB policymaker Ewald Nowotny said the bank's stance should not be interpreted as dovish. But it was slapped back down immediately, suggesting FX moves were getting erratic. Highlighting this was a rise in implied volatility, with one-month euro/dollar vol hovering around 12 percent after jumping on Thursday.
"New moves could generate volatility, and another driver could come from the other side of the Atlantic with NFP data this afternoon," options analysts at SocGen said in a note. The yen fell after a big rise the previous day, easing immediate concerns about possible further official intervention to stem its gains. Traders reported demand to sell yen from Japanese accounts as they returned from the Golden Week holiday.
The dollar was up 0.2 percent at 80.31 yen, bouncing from a seven-week low of 79.57 yen hit on Thursday and tackling resistance from the bottom of the Ichimoku cloud at 80.493. Major commodity currencies recovered, led by strong gains for the Australian dollar, which was up 0.85 percent at $1.0671, benefiting after the Reserve Bank of Australia warned a further rate rise would be needed.