The euro was in sight of a lifetime high against the yen on Thursday ahead of an expected rate rise by the European Central Bank, while the dollar inched towards a fresh two-year peak versus the Japanese currency.
The ECB is widely expected to bump up its key rate to 2.25 percent from the current 2 percent later in the day, the first rate rise in five years.
Dealers said the euro could suffer if the central bank did not deliver a bullish message to justify the view of many market players that the ECB will press on with another two quarter-point rate rises in 2006 to ward off inflation.
"If the ECB is unclear about additional rate increases, it will get hard for the euro to gain further, especially against the dollar," said Mitsuru Sahara, a senior trader at UFJ Bank.
The rate decision is due at 1245 GMT, followed by a news conference with ECB President Jean-Claude Trichet at 1330 GMT.
Traders said that ahead of the meeting, the euro was getting good support against the yen, with the euro's rate advantage over the Japanese currency - which carries a rate of virtually zero - set to widen.
The Federal Reserve, meanwhile, is expected to raise by 25 basis points this month and also in January, pushing the fed funds rate up to 4.5 percent.
Providing more fuel for dollar bulls, a report showed on Wednesday that the US economy grew by 4.3 percent in the third quarter, higher than the initial estimate of 3.8 percent and expectations for an upward revision to 4.0 percent.
The euro was buying 141.20 yen after climbing as high as 141.35 yen on Wednesday, its highest in 11 months. A rise above 141.60 yen would carry the single currency to a lifetime high. The euro was little changed at $1.1780. Dollar was also little changed at 119.85 yen, in sight of a 28-month high of around 119.95 yen.
The dollar has hovered just below 120 yen for most of the week but failed to vault higher, partly due to a large amount of option-related orders lined up around that level.
Traders said many of those options were due to expire on Thursday, which could clear the way for a move above 120 yen.
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