Euro rises in London

The euro edged up on hopes of a breakthrough in Greek debt talks on Friday, while the yen was on track to post its biggest daily gain in a month against the dollar, recouping most of the losses made earlier this week. Athens is locked in talks with its private creditors to restructure its debt and needs a deal quickly to avert an unruly default when a major bond redemption comes due in March.
The European Union's top economic official Olli Rehn said a deal was likely at the weekend, giving a boost to the euro. The euro was 0.3 percent higher on the day at $1.3139, having tripped stops above $1.3120, with traders citing bids at $1.3070 and $1.3050. "I wouldn't rule out a rise to the $1.3200/$1.3250 area but the upside looks quite constrained ... There are a lot of negatives that could bring the euro recovery to a halt fairly rapidly," said Ian Stannard, currency strategist at Morgan Stanley.
Many see the euro's bounce as limited due to uncertainties that a deal on Greek debt will be reached, while investors were also becoming cautious about the risks of a default in Portugal. "Investors seem to have grown used to Greek debt swap talks dragging on," said Ankita Dudani, G10 currency strategist at RBS. "What the real risk for the euro is contagion from a disorderly Greek default and whether Portugal needs another bailout."
Yields on Portuguese government bonds set fresh euro-era highs on Friday, extending their recent rise. The euro underperformed against the yen, with the common currency down 0.3 percent at 101.16 yen as the Japanese currency recovered broadly from lows struck this week. The dollar fell around 0.6 percent to 76.87 yen on EBS, leaving the yen on track for its biggest daily gain since late December. Traders said Japanese corporates sold the dollar which had been drifting lower after hitting a two-month high this week. This prompted hedge funds to follow suit, pushing the greenback through support at its 100-day moving average of 77.20 yen.
The dollar hit a two-month high of 78.29 yen on Wednesday, but the rally stalled right below resistance at its 200-day moving average. It reversed further after the US Federal Reserve pledged to keep rates low for a prolonged period. Dudani of RBS said with interest rate differentials moving in favour of the yen, the dollar was likely to stay subdued against the Japanese currency. The greenback has been on the back foot since the US Fed's dovish statement on Wednesday. The dollar index was down 0.25 percent at 79.186, not far from a six-week low of 79.067.
However, analysts said the dollar was unlikely to stay under pressure against the euro after some of the extreme bearish positions against the common currency had been pared. Chris Turner, chief FX strategist at ING, said investors were underestimating the risks of a domino effect from Greece.