FOREX-Euro hits multi-month highs versus dollar and yen

Wed Jan 30, 2013 6:16pm IST

* Euro rises vs dollar to highest since November 2011

* Single currency hits 33-month high versus yen

* Fed meeting, U.S. growth data in focus

* Yen slide resumes, more losses in store

By Anooja Debnath

LONDON, Jan 30 (Reuters) - The euro advanced to a 14-month high against the dollar and 33-month peak against the yen on Wednesday on improving prospects for the currency bloc, with investors gearing up for more gains in the near term.

With euro zone economic sentiment rising for the third month in a row, signalling improvement across sectors, and comments from European Central Bank policymaker Ewald Nowotny about the recovery seeping into the real economy, analysts said the recent trend of euro strength could be maintained.

And given bets that U.S. fourth-quarter gross domestic product data, due later in the day, will show growth slowing, and the Federal Reserve will stick to its easy-policy stance, the euro could edge up further against the dollar.

The euro hit a 14-month high of $1.3563, vaulting an option barrier at $1.3500 on sustained demand from model and macro funds, traders said. It was last up 0.4 percent on the day at $1.3540.

The single currency rose to a 33-month high of 123.87 yen, breaking past a reported option barrier at 123.00 yen on expectations of further monetary stimulus from the Bank of Japan. The euro has risen 8 percent against the yen this year.

"Right now the euro is certainly going to make some gains against most of the G10 currencies on reasonably positive to stable economic data and a central bank that seems to continue to back the move in the euro without complaining about it," said Peter Frank, FX strategist at BBVA.

Recent upbeat German data showed the euro zone's biggest economy may be on a path of steady recovery, while signs European banks may have turned the corner, after their first repayment of loans taken from the ECB, have bolstered optimism that the worst of the bloc's debt crisis has passed.

The euro's strength was more evident in the crosses, especially against the yen. Investors, mainly from Japan, have been keen to pour money into euro zone assets, pushing the euro higher.

Analysts said the euro would edge higher as most other major central banks, including the BOJ and the Fed, were pumping in stimulus, but the ECB seemed unperturbed about the euro's steep ascent.

ECB Governing Council member Nowotny said on Wednesday that the euro, while strengthening against the dollar and the yen, was still within its long-term exchange rate band.

"The ECB is doing nothing to talk down the currency and everything necessary to send it higher," Societe Generale analysts said in a note.

FED IN FOCUS

The euro could also get a lift from the Fed's first policy meeting of the year if the central bank maintains the status quo and continues to stimulate the economy to reduce unemployment.

While that is likely to push the dollar lower against most currencies, the U.S. currency is likely to hold its gains against the yen.

The dollar hit a fresh 2-1/2 high at 91.41 yen, bolstered by widening spreads between U.S. Treasury and Japanese government bond yields. Traders reported an option barrier at 91.50 yen which could cap gains in the near term.

Selling the yen has been mostly a one-way bet since mid-November, based on expectations that Japanese Prime Minister Shinzo Abe would push the BOJ into more aggressive monetary easing to beat deflation.

"We have a forecast of 95 yen for this quarter but even that could be exceeded given the pace of the current moves," said Ian Stannard, head of European FX strategy at Morgan Stanley.

Some analysts said there was a small risk the dollar could strengthen if the Fed sounded optimistic about the U.S. economy, as this could hint some policymakers were against prolonged monetary easing.

"If we see some dissent against a very long period of quantitative easing it could be dollar-friendly, though I think it is too early for that to happen in this month's meeting," BBVA's Frank said.

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