The dollar weakened against most major currencies in a seesaw session on Thursday as dealers adjusted positions ahead of Friday's July US employment report. The euro powered to a fresh 2-month intra-session high of $1.2402, according to Reuters data, while the dollar tumbled to a two-month low against a basket of currencies.
More talk of central banks selling dollars, stop-loss sell orders and relatively thin markets conspired to push the dollar lower against most currencies except the yen.
"It's positioning ahead of tomorrow's non-farm payrolls," said Charmaine Buskas, foreign exchange analyst at West Chester Pennsylvania-based Economy.com. Investors "are on the sidelines ahead of big economic data, and in particular tomorrow's non-farm payrolls."
Analysts expect another month of solid employment gains in July, with median estimates pointing to the creation of about 183,000 jobs, according to a Reuters survey.
After slipping to around $1.2310 earlier in the New York session, the euro rallied to trade above $1.2400 for the first time since May 31, the day it fell through key chart support around $1.2460.
That level is now considered crucial technical resistance and is the next upside target, traders say.
By late afternoon in New York trading, the euro had eased to $1.2380, still up 0.3 percent from the prior session, while sterling was up at $1.7802.
The dollar was down 0.2 percent against the Swiss franc at 1.2578 francs.
Thanks to heavy yen selling against the euro, the dollar managed to stay in positive territory against the Japanese currency, up 0.3 percent at 111.32 yen. Euro/yen rose 0.5 percent to 137.82.
Currency traders took two European interest rate decisions in stride, largely because both were widely expected.
The European Central Bank held interest rates unchanged while the Bank of England cut borrowing costs for the first time in two years.
On Wednesday, the euro finally broke through key technical resistance at the top of the $1.1950-$1.2260 range it had traded in over the past month.
This is viewed as an important development, potentially putting the dollar under selling pressure for a while to come.
"We went long euro/dollar from $1.2090 last week and today we are moving our 1-month forecast to $1.23 from $1.21 in recognition of this week's break," wrote UBS currency strategists in a research note on Thursday.
Traders said central banks, which are thought to have been rebalancing reserve holdings by increasing their euro holdings, were again active in the currency market on Thursday. "If we're back to that, then the dollar is going to lose," said a New York-based trader at a large US bank.
The dollar index, a traded contract representing the dollar's broad value against a basket of major currencies, fell to 87.61 on Thursday, a two-month low, before recovering slightly to trade at 87.80.
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