Euro hits five-week highs

The euro hit a five-week high against the US dollar on Monday as gains in European stocks signalled investors willingness to take on more risk. European share indexes closed higher for a fifth straight session, but on Wall Street, an early rally fizzled in late trading, which in turn weighed on the common currency.
"The jury is still out on whether we are seeing a dead cat bounce or if the rally in the euro is sustainable," said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto.
Earlier, a reported rise in euro-zone inflation last month helped push the euro above $1.30 for the first time since February 10. A pledge by the Group of 20 finance ministers during a weekend summit to double the resources available to aid emerging market economies also lifted spirits.
In late afternoon trading in New York, the euro was up 0.3 percent at $1.2956 after earlier hitting a $1.3070 session peak. Sterling gained 0.4 percent to $1.4058, raising in tandem with UK shares. The dollar was 0.2 percent higher at 98.20 yen, partly on demand from Japanese importers, though exporter selling capped the dollars gains, traders said.
The greenback has rallied in recent months because investors see it as the safest store of value at a time when economies around the globe are contracting. Its role as a main funding currency outside Europe also enhances its appeal. When sentiment improves, however, investors feel more confident buying stocks and other major currencies, while the pressure to hoard dollars for funding needs eases.
Recent gains in the equity markets "are really feeding risk appetite," said Dan Cook, senior analyst at IGM Markets in Chicago. "But while weve had a good run for a few days, theres still not much good news, so were vulnerable to a reversal."
The dollar also was pressured after Treasury said foreigners sold a record net $148.9 billion of US securities in January, stoking concerns about the United States ability to finance its current account deficit. There were also signs of more weakness in the economy as the New York Federal Reserves manufacturing index fell to yet another record low in March while US industrial production tumbled in February.
In a taped US television interview, Fed Chairman Ben Bernanke said the recession could last most of this year. "The data this morning does not paint a particularly pretty picture," said Bank of New York-Mellon strategist Michael Woolfolk. "There are really no signs of life in the manufacturing sector of this economy just now, but today, sentiment is trumping fundamentals."
The Fed will hold a two-day policy meeting this week and the markets are waiting to see if it signals plans to buy long-dated Treasuries in an attempt to keep interest rates low. Britains central bank has already bought gilts and the Swiss National Bank intervened in currency markets last week to weaken the Swiss franc to stave off deflation, a move analysts say could be repeated.
The euro hit a 12-week high of 1.5447 francs on Monday but was last little changed at 1.5344 francs. The Bank of Japan, which also meets this week, may boost long-dated government bond purchases and is considering buying banks subordinated debt, according to the Nikkei business newspaper.