* Euro gains 3 pct vs U.S. dollar in January, yen loses 5
* U.S. dollar touches new 2-1/2-year high vs yen
* Focus shifts to Friday's U.S. nonfarm payrolls data
By Daniel Bases and Wanfeng Zhou
NEW YORK, Jan 31 The euro rose to a 14-month
high against the dollar on Thursday, heading for its best month
in over a year as signs of recovery in the euro zone's economy
set the currency on a bullish trend.
The yen fell to a 2-1/2-year low against both the U.S.
dollar and euro, extending its recent decline on expectations of
further monetary easing in Japan.
The dollar was on pace for a monthly gain of 5.3 percent
versus the yen. The euro rallied for a sixth consecutive month
against the yen, rising 8.3 percent in January, which marked its
the best month since February 2012.
Trading grew choppy as the session came to a close as
investors prepared their books for month-end positioning and for
U.S. jobs data on Friday.
"I think whatever we get in terms of payrolls, it will
likely be knee-jerk because we don't yet really know what the
Fed's newest voting members are thinking for a few more weeks,"
said Brian Kim, currency strategist at RBS Securities in
He was referring to minutes of the latest U.S. Federal
Reserve Board meeting due for release in about three weeks, in
which new voting members' comments take on greater weight.
"If there is a perceived dovish sentiment, then it is more
selling of the dollar. But we likely have a reaction and refocus
on data," Kim said.
Economists polled by Reuters forecast a rise to 160,000 new
non-farm jobs in January, up from 155,000 in December, with the
unemployment rate steady at 7.8 percent.
On Wednesday the Fed left in place its monthly $85 billion
bond-buying stimulus plan. The Fed said the U.S. jobs market
would continue to improve at a modest pace and pledged to keep
purchasing securities until unemployment falls "substantially."
Weak German retail sales data released on Thursday slightly
dented the bullish sentiment on the euro, but it was offset by a
strong reading on the country's labor market and did little to
change to the currency's rising trend.
"We're looking at dollar weakness to persist," said Eric
Viloria, senior currency strategist at Forex.com in New York.
"The (jobs) number probably isn't going to change the
outlook in terms of Fed policy because even if you have a number
that's a lot better than expected, they need to see sustained
improvement in the labor market."
The euro rose as high as $1.3593 on Reuters data, its
strongest level since November 2011, and was last up 0.08
percent at $1.3577. It was on track for a 3 percent rise
this month, the biggest since October 2011.
On Wednesday the euro decisively broke above the $1.35
level, which coincided with the 50 percent Fibonacci retracement
of the drop from May 2011 peak through the July 2012 trough, a
Traders said month-end flows could trap the euro in a range
and leave it below a reported option barrier at $1.3600.
Further upside targets are at $1.3640, the high in
mid-November 2011, and $1.3833-35, the 61.8 percent retracement
of the move down from May 2011 to July 2012, which also
coincides with the July 2011 low.
Against the yen, the euro rose 0.53 percent to 124.22
, having hit as high as 124.31 yen, the strongest level
in nearly 3 years.
The dollar climbed 0.44 percent to 91.50 yen, just
off its 2-1/2 year high of 91.54 yen set earlier on Thursday.
The dollar has rallied over 12 percent versus the yen since
European politicians have ramped up talk of a "currency war"
as the euro has been the biggest beneficiary of weakness in the
yen and the dollar. But European Central Bank policymakers have
maintained a view that the euro is well within its long-term
averages, reflecting little desire to curb its recent strength.
A Bank of Japan deputy governor shrugged off criticisms
overseas, sending the strongest signal yet that the BOJ will
boldly implement more stimulus if needed to achieve its new 2
percent inflation target.
While the Fed and the Bank of Japan both signaled more
stimulus, the ECB said last week that banks would pay back a
greater-than-expected amount in loans. The ECB is the first
major central bank to start unwinding some of its unconventional
monetary policy measures.
Some analysts said the euro also gained as fears of a Greek
exit and a break-up of the euro zone eased, prompting investors
to reinvest in the region after shunning it much of last year.