The euro climbed for the third straight day, advancing to a two-week high against the US dollar on Thursday as a solid Spanish debt auction and improving risk tolerance prompted investors to buy the euro zone common currency. Analysts, however, believe the euro's gains are still tenuous at best and its downtrend will resume on any negative news from the 17-nation bloc.
Helping the euro's rebound was Spain's sale of 6.61 billion euros in government bonds on Thursday, more than its announced target, analysts said, in an auction that analysts said went well, supported by domestic banks and a pick-up in appetite for riskier assets. "There have been some positive developments out of Europe. The bond auctions have gone well and there are also some indications that there could be some positive outcome out of the Greek negotiations on private sector debt," said Aroop Chatterjee, senior currency strategist at Barclays Capital in New York.
Talks between Greece and its creditors are proceeding, although much more progress is needed before a bond swap to reduce the country's huge debt is reached, three sources close to the discussions said. News that the International Monetary Fund could boost its resources to help countries deal with the euro zone debt crisis also added to the positive tone.
That said, Chatterjee pointed out that Barclays remained bearish on the euro in the medium term. "We think growth will be a lot weaker this year. We're forecasting a negative growth rate for the euro zone in 2012." He said the bank sees the euro hitting $1.25 against the dollar by the first quarter and $1.20 over the next six months.
In late afternoon New York trading, the euro was up 0.8 percent on the day at $1.2958 after traders said stops were triggered on the break of Friday's high en route to a two-week high of $1.2958. The euro briefly pared gains after US data showed a sharp decline in initial US jobless claims in the latest week and tame consumer prices in December, but that decline was fleeting.
"Some mixed data from the US, but the sizable reduction in weekly jobless claims could win the day by highlighting further improvement in the US labour market," said Andrew Grantham, economist at CIBC World Markets in Toronto. The euro moved further away from Friday's 17-month low, with bids reported at $1.2840 and downside stop-losses through $1.2800. In the options market, one-month euro/dollar implied volatility eased to 11.25 percent from 11.8 on Wednesday.
Against the yen, the euro fetched 100.02 yen, up 1.4 percent, after hitting a two-week high of 100.05 yen. It has gained more than 2 percent since hitting an 11-year low on Monday. Still, uncertainty over the euro zone debt crisis would continue to weigh on the euro and upticks were unlikely to last long, presenting selling opportunities for investors.
The euro was little changed against the Swiss franc at 1.2083 francs, within striking distance of the Swiss National Bank's 1.20 floor. That level is likely to be strongly defended by the SNB if threatened by a renewed attack on the euro. Against the yen, the dollar was 0.5 percent higher at 77.15, hitting roughly two-week peaks around 77.310 yen. A big catalyst was the rise in US yields, traders said. US benchmark yields rose for a second straight day.
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