The euro edged up on Friday, recouping earlier losses on expectations that Ireland was near a deal to get tens of billions of euros from its European partners and the IMF for its shattered banks. The euro hit the day's high versus the dollar after China tightened monetary policy on Friday by raising banks' reserve requirements, as a fall in many major currencies on the initial news was countered by a wave of buying.
Still, some higher-risk currencies including the Australian dollar traded lower on the day, as China's tightening moves were seen as detrimental to the Aussie, which tends to rise on signs that Beijing's economy is growing. Investors awaited an announcement on debt assistance to Ireland. Dublin said discussions would run into next week, and Finance Minister Brian Lenihan told parliament it was not yet at the point of requesting a loan.
Analysts said a bailout package would boost the euro. "There is a degree of calm on anticipation of a near-term resolution for the Irish banks, which has fed renewed risk-taking and a relief rally for the euro, which could potentially rise to $1.40," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
By 1205 GMT, the euro rose 0.5 percent on the day to a session high around $1.3730. It has recovered from a slide to a seven-week low of $1.3446 earlier in the week and is poised to end the week slightly higher against the dollar. Support was seen at the 55-day moving average at $1.3607 on Friday, traders said. Offers were seen around $1.3700 and above.
Losses versus the euro helped to push the dollar index down 0.5 percent on the day. Against the yen, the euro rose 0.3 percent to 114.25 yen, up from the week's low of 112.27 yen on Tuesday. Analysts said money market rates have remained higher since Greece's debt problems came to a head earlier this year, suggesting investors have priced in the possibility of more sovereign debt crises and minimising the possibility of another hefty sell-off in the euro.
"We're not seeing the vicious, speculative selling of the euro as we did during Greece's problems," said Stephen Gallo, head of markets analysis at Schneider FX.
ECB President Jean-Claude Trichet on Friday said he shared the same view on the dollar as US Federal Reserve Chairman Ben Bernanke, who hit back at critics of the US central bank's latest bond-buying programme. In prepared remarks for delivery at a conference in Frankfurt, Bernanke also issued a thinly veiled attack on China's policy of keeping its currency weak. The dollar eased 0.2 percent to 83.30 yen, coming off a six-week high of 83.79 yen marked on Thursday.
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