The euro rose on Thursday, supported by healthy results at Spanish and French bond auctions and stable global equities but investors remained cautious ahead of a key reading on the US labor market on Friday.
The European Central Bank left interest rates unchanged at 1 percent as expected and extended its liquidity safety-net on worries about vulnerable banks. The decision and following remarks by ECB President Jean-Claude Trichet were seen as positive but had limited impact on the euro.
The focus now is on the Labor Department’s monthly employment report, with analysts predicting US nonfarm payrolls fell a third straight month in August.
Currency markets are not paying too much attention “to anything but the jobs number tomorrow,” said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
A scarcity of jobs threatens to derail a fragile recovery and a weak employment report would be further confirmation of deterioration in the economy, which could cause investors to favor government bonds, pushing benchmark yields even lower.
Low yields have contributed to weakness in the greenback recently, with many investors selling dollars in favor of other safe-haven currencies such as the Swiss franc and the yen in reaction to negative US news.
“The key jobs figures tomorrow could set the market’s tone for the weeks ahead,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc in Washington.
“Another disappointing employment report … would likely play up concerns about America’s recovery losing momentum and see the dollar fall further in the data’s initial aftermath,” he said.
In late morning trading in New York, the euro was up 0.1 percent at $1.2822, gaining support after Spain and France drew decent demand as they sold a combined 12.2 billion euros in bonds.
The next target for the euro was around $1.2873 — a 38.2 percent Fibonacci retracement of its fall from its August peak of $1.3334 to its August low of $1.2588. The target after that would be $1.2923, touched on Aug. 18.
Earlier data confirmed the euro zone economy grew by 1.0 percent quarter-on-quarter between April and June.
In the United States reports were also supportive, with an unexpectedly strong reading on pending home sales and a drop in weekly jobless claims.
Upbeat US and Chinese manufacturing data on Wednesday had lured investors away from perceived safe-haven assets, lifting stocks, commodities and higher-yielding currencies.
“With so much uncertainty, the market is very volatile and moves depend on the daily data flow,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
The dollar was down 0.3 percent at 84.17 yen, close to a 15-year low of 83.58 yen hit last week. The yen showed limited reaction to Japan’s political heavyweight Ichiro Ozawa saying action was needed to stem yen gains.
SWEDISH CROWN GAINS
The Swedish crown rose to its highest in more than two years against the euro earlier around 9.2959 after Sweden’s central bank raised its key interest rate to 0.75 percent, as expected.
It also left its forecasts for interest rates unchanged from July, helping to lift the crown as many in the market had expected them to lower the profile slightly. The Riksbank was also upbeat on the economy.