The euro rose against the dollar on Wednesday after China said it would continue investing in euro zone debt, offsetting a contraction in quarterly GDP that added to concerns the currency bloc could slip into recession. The single currency was also underpinned by pledges from Greek Conservative party leader Antonis Samaras to commit to tough austerity measures.
An earlier failure to reach consensus on the measures in Athens forced the cancellation Wednesday's talks between euro zone finance ministers on the country's bailout, hitting the single currency The euro was up 0.3 percent at $1.3158, still well below a February 9 peak of $1.3322. CitiFX Wire said in a note that its traders were looking to buy on dips rather than chase the euro higher.
Euro zone economic output shrank by 0.3 percent in the fourth quarter of 2011, as forecast. The data had limited impact on the euro but analysts said weak European growth could weigh on the currency versus the dollar in the medium term as the US economic picture improves. Earlier, China's central bank governor said his country retained confidence in the euro. "The China comments have helped positive sentiment today and GDP figures were pretty much as expected," said Nick Beecroft, senior markets consultant at Saxo Bank.
He said investors had built up a lot of cash which would be put to work once first quarter event risk was out of the way, lifting the euro, growth-linked currencies and equities. But worries about growth could return towards the end of the year. Against the yen, the euro was up 0.3 percent at 103.29 yen, having hit a two-month high of 103.49 yen on EBS trading platform.
The dollar also continued to outperform the yen after monetary easing steps from the Bank of Japan on Tuesday weighed on the Japanese currency. It hit a 3-1/2 month high of 78.67 yen and was last at 78.58 yen. Japan's shrinking current account surplus, its trade deficit and signs of economic recovery in the United States have also knocked sentiment towards the yen. The dollar was well above strong support at its 200-day moving average, currently around 78.04 yen, having closed above it for the first time since mid-April. Tough resistance was seen at the post-intervention high of 79.55 yen. Dollar/yen stop loss buying by short-term accounts and Japanese importers suggested the dollar may extend its gains in the near term. Aviva's Lequeux also saw a positive outlook further out, potentially rising to 85 yen in 6-12 months. The risk-correlated Australian dollar rose 0.8 percent to US $1.0763 while the dollar index fell 0.4 percent to 79.244.