The euro rose against the dollar on Friday on expectations that US jobs data would show the economy slowly recovering and on talk of the possibility the European Central Bank may lend to weak eurozone countries via the IMF. The talk sparked hopes of some kind of solution to the euro debt crisis, pushing the euro up 0.5 percent to $1.3538, its strongest in more than a week, with traders saying it extended gains after stop loss orders were triggered about $1.3530.
Investors were wary of buying the single currency aggressively, however, given that it has already rallied more than 1 percent this week even as it remains vulnerable to the region's debt problems. Johan Javeus, chief strategist at SEB in Stockholm, said he expected the data would confirm the US economy is faring better than it was in the first half of the year, although it would not show a very strong recovery trajectory.
"It should confirm what we've seen in other data, that things are not as bad as people thought a few months ago. In that sense I don't expect a really big reaction from this number should it come in line with expectations or slightly better," he said. But with investors sidelined before the jobs report, market participants showed little reaction to a speech by German Chancellor Angela Merkel, who told parliament the eurozone debt crisis could not be solved in one fell swoop and urged tighter fiscal integration.
French and German leaders are meeting next Monday to outline joint proposals to put to a December 9 EU summit, seen as yet another make-or-break meeting for the 12-year-old currency bloc. Nervousness ahead of this summit was expected to limit any euro gains from strong US jobs data.
"It will just be one more piece of good data coming on the back of a few positive things this week and there may be some reaction but I wouldn't expect it to be massive," said Nomura strategist Lefteris Farmakis. Other currencies perceived to be higher risk, including the Australian and New Zealand dollars, also rose against a softer dollar, which slipped 0.4 percent versus a currency basket to 78.026. A 1.5 percent rise in European share prices suggested an ongoing improvement in risk appetite this week, which has prompted investors to sell the safe-haven US currency.
Against the yen, the dollar edged up 0.2 percent to 77.86 yen. The euro has held gains after rallying earlier in the week, when major central banks around the world took coordinated measures to increase dollar liquidity to prevent a liquidity crunch in markets. Analysts said this had provided a stop-gap measure to stabilise markets for now, while adding that investors had big expectations for the EU summit next week.