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Euro surges to 15-month highs; dollar slides

London, April 20, 2011

The euro surged to its highest in 15 months against a weaker dollar on Wednesday, boosted by better risk appetite and after a bond auction from Spain was well received by investors.

The response to the Spanish bond auction provided a fillip to the common currency which is eyeing its Jan. 13, 2010 high of $1.4582. Traders said, before that the euro would have to clear option barriers at $1.4550 and $1.4600.

'It is a risk-on theme which means the dollar and yen are under pressure,' said Jeremy Stretch head of currency strategy at CIBC World Markets. 'The Spanish bond auction has added to pro-euro rally and the next target is $1.4580.'

The euro rose more than 1 per cent versus the dollar to $1.4548, pulling further away from this week's low of around $1.4155. Traders said stop-losses were triggered through last week's high of $1.4521 and on the break of $1.4530.

The euro jumped 1.5 per cent to 120.18 yen, moving away from a two-week trough of 116.49 yen hit on EBS earlier this week. Trading conditions were thin with many dealers already out for the Easter break.

Data highlighting business activity in Germany and France continued to outpace the rest of the common currency bloc has kept alive rate hike expectations by the European Central Bank.

Both the dollar and the yen are usually sold off when risk appetite is buoyant. Demand for riskier assets like stocks and higher-yielding currencies picked up as upbeat corporate earnings in the US raised growth expectations.

Gains in US and European shares soothed market sentiment after nerves were rattled on Monday by S&P's warning on US credit ratings and on fears that Greece will have to restructure its debt.

Intel Corp forecast revenues well above Wall Street's targets, sending its shares higher in after hours trade.  IBM results also outpaced expectations and it raised its full-year profit forecast.

'Investor focus is on the earnings season in the US and this is key in driving growth expectations and pushing stock markets higher. This keeps focus away from euro zone periphery right now,' said Manuel Oliveri, currency strategist at UBS in Zurich.

Commodity currencies buoyant

The chase for yields benefitted the Australian dollar, which hit a fresh 29-year high of $1.0688 to trade up around 1.4 per cent on the day. Traders said stop-losses were hit on the break of 1.0610 and $1.0650.

The Canadian dollar rose to its highest in over three years against its US counterpart at C$0.9503, buoyed by above forecast Canadian inflation on Tuesday and rising commodity prices.

All of which saw the dollar index fall to a 16-month low of 74.302. Traders said talk of central banks recycling intervention proceeds into growth-linked currencies and the euro was also leading to a drop in the US dollar.

As the dollar's value fell, the price of gold hit a record high above $1,500 and silver rose to a 31-year high.

Still, the dollar managed to eke out modest gains versus the yen. It rose 0.2 per cent from late US trade on Tuesday to 82.73 yen. Traders said Japanese exporters' offers were layered in the 83.20-83.50 area with stops seen above 83.50 yen.

Meanwhile, the Swedish crown extended gains against the euro, with the common currency down 0.4 per cent at 8.8855 per crown as the Riksbank raised inflation expectations significantly.

But sterling fell sharply against the euro after Bank of England minutes showed policymaker caution about economic growth outweighed inflation worries. The euro was at 88.67 pence, having risen as high as 88.75 pence, and up nearly 1 per cent on the day. – Reuters




Tags: forex | Spain | London | euro | Dollar | Yen |

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