The euro is on the rise against the dollar after previously reaching a two year low. This surprising rise come as equities rise on earnings, which lifted risker currencies. The Aussie dollar hits a 11 week high against the dollar and record high against the euro. Spain bonds are awaiting auction as a German vote on the Spanish bank aid pushed for the sale.
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Upbeat earnings lifted equities in the United States, Asia and Europe, while the dollar fell to a two-week low against a basket of currencies, with the dollar index hitting 82.740.
The U.S. dollar also fell to a six-week low against the yen, with investors preferring the Japanese currency due to the possibility of more monetary easing in the United States.
Despite gaining against the dollar, the euro fell against the yen and dropped to a record low against the Australian dollar and was seen as vulnerable before a German vote on approving Berlin’s contribution to an aid package for Spanish banks.
Spanish borrowing costs are expected to rise at an auction of 2-3 billion euros in two- to seven-year debt.
The euro was up 0.1 percent against the dollar at $1.2296, having hit a one-week high of $1.2325, though traders reported demand to sell the currency up to $1.2350, which could limit its gains.
It stayed above a two-year low of $1.2162 hit last week.
“The theme is one of carry plays because there is so much excess money out there that people are looking to get any sort of return on their investment, whether in bonds or in equities,” said Ankita Dudani, currency strategist at RBS.
This was likely to lead to increased selling of the lower-yielding major currencies – the dollar, euro, yen and sterling – against growth-linked currencies such as the Australian dollar.
The Australian dollar hit a high of $1.0416 against the U.S. dollar, its strongest since May 1, and a record high of A$1.1808 per euro, with traders also citing talk of central bank demand to diversify their holdings into Australian assets.
The Canadian dollar also rose to a two-month high of C$1.0089 per U.S. dollar.
Analysts expected investors to keep selling the euro as euro zone debt problems encourage them to seek alternatives.
“Pressure remains on the dollar as well, as the Fed chief’s remarks keep alive the possibility of more U.S. easing to come,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
U.S. Federal Reserve Chairman Ben Bernanke’s congressional testimony on Wednesday echoed what he said the previous day, emphasising the central bank’s willingness to support the economy as needed without outlining specific steps, and also highlighting job market weakness.
The dollar fell to 78.477 Japanese yen on the EBS trading platform, its lowest since early June, with traders saying stop loss selling orders were triggered on the break below 78.50 yen.
The euro was also down 0.2 percent at 96.60 yen and more losses could take it back towards a six-week low of 96.17 yen reached on Monday.
Over the past month, the euro has taken dip after dip against other currencies. The most recent fall was after comments from German’s Chancellor Merkel that spooked the market. After the Chancellor’s remarks that reflected a negative outlook on the economy, the euro took a fall as investors lost even more confidence. This week’s end may finally bring good news for the euro as it finally made some headway. On Thursday, the euro gained versus the U.S. dollar, even though it did not fare well up against the Aussie dollar. The Aussie dollar rose to a two and a half month high Thursday and it was lifted up by gains in the equities that buoyed demands for a riskier and higher yield currency.
Earnings on the rise picked up equities in the United States, Asia, and Europe. This was not enough to keep the dollar from falling to a new two week low though. This fall came against a basket of currencies with the dollar indexing at 82.740. Against the yen, the U.S. dollar fell to a six week low as traders preferred the yen because of the likely stimulus money heading the United States.
Even though the euro did well against the dollar, it still did not gain against the yen or the Aussie dollar. While traders await to hear news about the German vote on approving Berlin’s part in the aid package for Spain’s Banks, the economy will remain vulnerable.
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