The euro hit a three-week high against the dollar on Friday, buoyed by better risk sentiment while the Swiss franc stumbled as Greece's passage of austerity measures prompted investors to cut back long positions in the safe-haven currency. With another hurdle in the eurozone debt crisis cleared, market participants saw more room for the euro to climb, particularly if euro zone interest rates rise next week.
The common currency was also bolstered by speculation that some Asian central banks, which are said to have intervened and bought dollars in their respective currency markets, could recycle those proceeds into the euro. Analysts said the euro could gain more ground if the US ISM manufacturing report surprised on the upside. Risk appetite was boosted on Thursday after data showed factory activity in the US Midwest accelerated in June, fostering hopes of a pick-up in economic growth.
"The market is bullish on risk and looking to buy euros," said Paul Mackel, director of currency strategy at HSBC. "It could rise to $1.47 against the dollar if the data pulse from the US keeps getting better. The Greek issues still linger, but there is a bit of calm now with the markets' focus on data."
The euro hit a three-week high of $1.4553 early in the European session according to electronic trading platform EBS, in a move, which pushed through a big options barrier around $1.4550. By 1120 GMT, it traded around $1.4530. It took weak eurozone manufacturing surveys within its stride, as the data did little to alter strong expectations that the European Central Bank would raise interest rates next week.
Traders said the market was starting to rebuild long positions before the ECB meets on Thursday, when it is seen raising rates by 25 basis points to 1.50 percent. This would be positive for the euro as it would increase its rate differential against the dollar and other currencies.
"There is a bit more upside in the euro ahead of the ECB meeting and if (President Jean-Claude) Trichet strikes a hawkish bias," said Chris Walker currency strategist at UBS. "But a lot will be contingent on current economic conditions." The Swiss franc took a beating, driving both the dollar and the euro more than half a percent higher on the day.
The dollar rallied to 0.8475 francs according to EBS, rebounding further from a lifetime low of 0.8276 hit earlier in the week. Traders cited corporate-related demand from Swiss banks as driving the dollar higher. This helped to push the euro to 1.2301 francs according to EBS, its highest in three weeks, before it trimmed gains on profit-taking.
Gains in the dollar versus the Swiss franc pushed the US currency higher versus a currency basket, pushing the dollar index up 0.2 percent to 74.487.
Some market participants cautioned that a squaring of long positions taken in the euro this week may put the single currency at risk of some selling ahead of a three-day holiday weekend in the United States. But traders expected any downside would be limited, after the single currency rallied nearly 3 percent from Monday's trough around $1.4100.
Lower down, it was well supported around $1.4405, where its 55- and 21-day moving averages were located, along with the top of its Ichimoku cloud. Treading above that cloud is considered a bullish signal according to the popular technical analysis tool.
The euro is poised to gain more than 2 percent in a dramatic week which saw market sentiment swing from worries that Greece would go bankrupt to relief that it would get through the crisis, against a backdrop of violent protests and general strikes over austerity steps. Euro resistance is seen at around $1.4570, the 61.8 percent retracement of the euro's fall from its May 4 high of $1.4940 to its recent low of $1.3970 on May 23. The Greek parliament approved a detailed austerity plan on Thursday, paving the way for 12 billion euros of international aid.
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