The euro hit a fresh two-month high versus the dollar on Friday, supported by rising European money market rates which took it close to barriers at $1.30 while a deteriorating US economic outlook dented the dollar. The dollar slid to a two-and-a-half month low versus a currency basket as this week's poor US data and dovish Federal Reserve comments increased concerns about a slackening in the world's largest economy.
However, traders said large option and stop loss barriers at the psychologically key $1.3000 level were being defended, slowing the euro's gains. "The euro has been supported by the combination of reduced euro zone systemic risk after successful peripheral government bond auctions this week and weaker cyclical fundamentals behind the dollar given signs of slowing US consumer spending and manufacturing activity," said Lena Komileva, G7 market economist at Tullett Prebon.
At 1121 GMT, the euro was trading up 0.3 percent at $1.2974, close to an earlier 2-month high of $1.2986. Technical analysts said the picture for the euro had been improved by Thursday's close above the Ichimoku cloud at $1.2785 for the first time since December.
A break above $1.3000 would bring resistance at $1.3125 into play, the 38.2 percent retracement of the euro's fall from November to June. The euro has risen more than 9 percent from a four-year low of $1.1875 hit on June 7, helped by smooth government bond auctions in Greece, Portugal and Spain easing debt concerns.
The dollar index fell 0.4 percent to 82.235, having hit a low of 82.211, its weakest since early May. Earlier this month, the dollar index broke below the daily Ichimoku cloud, suggesting more losses may be in store. Elsewhere, the New Zealand dollar fell 1.4 percent after weaker-than-expected inflation data.
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