The euro rose to a one-month high against the weak dollar on Thursday, boosted by expectations of a quick-fix solution to the Greek debt crisis, although gains could be checked by investors selling into the bounce. The euro was also helped by strong demand at a Spanish bond auction, comments by European Central Bank President Jean-Claude Trichet, and the struggling dollar, which fell to a one-month low against a basket of currencies.
A senior government official told Reuters that Greece has agreed to 6.4 billion euros in new steps to cut its 2011 budget deficit and aims to wrap up bailout talks with international inspectors by Friday. The "troika" team from the European Union, International Monetary Fund and European Central Bank has been in Athens since early May, negotiating on two main points - whether the government has qualified for a fifth slice of funding under the existing 110 billion euro rescue deal, and the sustainability of Greeece's 340 billion euro debt burden.
"Whatever the "troika" agrees to will provide a short term relief rally to the euro," said Lena Komileva, global head of G-10 strategy at Brown Brothers Harriman. "The $1.45 level for the euro remains key and I believe any rally by the euro could see a sell-off as systemic risks in the eurozone will still be there. Any short-term solution (for) Greece is just kicking the can down the road."
The euro was last 1.1 percent higher on the day at $1.4467, having risen as high as $1.4487 on trading platform EBS. Traders said a major Asian sovereign account was a seller around the highs with further stops highlighted on a break of $1.4500, while option barriers rolling off this month are layered up to $1.4700.
The euro clawed back ground even after Moody's cut its credit rating for Greece deep into junk territory. It also gained over 1 percent against the Swiss franc, rising as high as 1.2191 francs and pulling away from its record low of 1.2053 francs struck earlier on Thursday.
But the US dollar was under pressure against the safe-haven Swiss franc, shedding 0.2 percent and trading not far from its record low of 0.8383, struck on Wednesday. The dollar fell after data on Wednesday showed US companies hired far fewer workers than expected in May and that output in the manufacturing sector slowed to its lowest since 2009.
Analysts said a poor US non-farm payrolls number on Friday could trigger more dollar losses and fuel speculation about the need for more monetary stimulus measures after a second round of quantitative easing by the Federal Reserve ends this month.
"We're in a stage where the dollar will be soft if people become concerned about weak US data, as QE3 could become a by-product of that," said RBS currency strategist Ankita Dudani. "We'll get a better grip on how the economy is doing after the nonfarm payrolls," she said, adding that another round of quantitative easing was unlikely as she expected the US economy to pick up in the second half of 2011.
The dollar index was down 0.4 percent at 74.376, having fallen to a one-month low of 74.29. The dollar slipped 0.1 percent to 80.81 yen. The yen inched up a touch after Japanese Prime Minister Naoto Kan on Thursday survived a no-confidence vote, but traders said overall reaction to the vote was limited.