* Euro best performer among G3 currencies
* Fed keeps bond-buying stimulus in place
* Yen remains under pressure, delves new depths
By Ian Chua
SYDNEY, Jan 31 The euro held near a 14-month
peak against the dollar and a 2-1/2 year high versus the yen on
Thursday, having risen solidly as investors expect central banks
in both the United States and Japan to keep an aggressive easing
The U.S. Federal Reserve underscored that view by leaving in
place its monthly $85 billion bond-buying stimulus plan on
Wednesday, arguing the support was needed to lower unemployment.
"The bottom line is that there are no signs of a shift away
from QE3," said Vassili Serebriakov, strategist at BNP Paribas
referring to the Fed's bond-buying programme.
"Moreover, recent data suggest that the economy remains well
short of the substantial and sustained improvement that the Fed
is looking for."
That saw the euro break above key resistance around $1.3500
and move close to $1.3570, a high not seen since
November, 2011. As a result, the dollar index fell to a
six-week low around 79.183. It was last at 79.263.
"The DXY is threatening support at 79.2. From a technical
perspective, a clear break of that level would open further USD
downside," Serebriakov added.
Seeming to support the Fed's cautious view, data on
Wednesday showed the U.S. economy unexpectedly contracted in the
Still, a lot of that weakness came from a plunge in defence
spending, suggesting the underlying fundamentals were not as bad
as the headline figures indicated.
Traders said the market focus will now turn to the U.S.
employment report on Friday for the latest read on the health of
the world's biggest economy.
In contrast, European data on Wednesday showed economic
sentiment improved for a third straight month, a sign the euro
zone is emerging from a low point and diminishing the chance of
a rate cut from the European Central Bank.
Against the yen, the single currency was up at 123.58
, having hit a 2-1/2 year high of 123.86.
Expectations that newly installed Japanese Prime Minister
Shinzo Abe would push the Bank of Japan into more aggressive
monetary easing to beat deflation have made selling the yen a
one-way bet in the past few weeks.
Since November, the euro and dollar have climbed around 23
percent and 15 percent on the yen respectively.
Abe on Wednesday shrugged off criticism that the government
was trying to intentionally weaken the yen with its monetary and
fiscal stimulus measures, saying they were aimed at beating
deflation and achieving sustainable economic growth.
Even the dollar advanced against the yen, climbing to a
fresh 2-1/2 year high around 91.40 yen. It last stood at
91.14. Traders noted large option barriers around 91.50-92.00
were likely to cap further upside for now.
"Yen depreciation has more room to go, in our view. We now
look for the yen to depreciate to 96 and 100 versus the USD in 6
months and 12 months, respectively," analysts at Barclays
Capital wrote in a client note.
Commodity currencies were mostly relegated to the sidelines,
although a warning about rising inflation pressures from New
Zealand's central bank gave the kiwi dollar a bit of a fillip.
The kiwi jumped to $0.8363 from a low of $0.8295,
but remained stuck in its $0.8200/8450 range.