The euro hit a one-month high against the dollar on Monday as traders unwound bearish bets on the single currency after stronger-than-expected US jobs data last week improved investors' appetite for risk. Investors were looking ahead to next month for the European Central Bank to help lower painfully high borrowing costs for Spain and Italy, as initial disappointment has faded over the bank's failure to act last Thursday.
"When you think about the fact that something positive will probably materialise even if it takes some time, the euro could see a bit of a rebound," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, referring to possible ECB measures. The single currency gained a boost in early Asia as traders trimmed bearish bets on the euro to cut their losses in thin trading conditions, he added.
Earlier, the euro climbed to as high as $1.2444 on trading platform EBS, its highest level since July 5. Traders said the euro's rise gathered steam after triggering stop-loss bids at levels above $1.2400. The euro was last up 0.1 percent from late US trade on Friday at $1.23 95, holding firm after surging roughly 1.7 percent on Friday, its biggest one-day percentage gain in about a month.
Immediate resistance for the single currency is seen at around $1.2478, a level representing the 61.8 percent retracement of its drop from a mid-June peak near $1.2750 down to a two-year low of $1.2042 struck in late July. Data last Friday showed US employers hired the most workers in five months in July, soothing investor fears about the US economy's outlook and stirring demand for risky assets.
The improvement in risk sentiment weighed on the safe haven currencies while giving support to the euro and commodity currencies, which tend to get a lift when optimism about the global economy's outlook improves. The Australian dollar held steady at $1.05 71, hovering near last week's high of $1.0581, its highest level since March.
The US dollar eased 0.1 percent against the yen to 78.45 yen, but remained above a two-month low of 77.90 yen hit last week. The euro has seen some choppy trading after the European Central Bank indicated last Thursday that it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs.
The single currency initially fell on disappointment over the lack of immediate action, before rebounding on Friday. "Investors appear to be coming around to a more rational and positive understanding of what the ECB is moving towards doing," said Shane Oliver, head of investment strategy at AMP Capital Investors.
Not all are convinced that new ECB bond-buying measures would trigger a sustained euro rally, however. The latest euro bounce is unsurprising given the bearish market positioning against the single currency, said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
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