Euro retreats in London

The euro eased against the dollar on Friday as some investors took profits on Thursday's rally to a seven-week high, although lingering optimism that policymakers are edging closer to tackling the debt crisis are likely to check losses. Sources told Reuters on Thursday Spain is in talks with eurozone partners over conditions for aid to bring down its borrowing costs, though the country has not made a final decision to request a bailout.
While this implied there would be no rapid progress in resolving Spain's debt problems, some strategists said the talks are positive for the euro as they could open the door for the European Central Bank to intervene in the bond market. The euro has rallied strongly this week on speculation the ECB will unveil plans to help lower Spanish and Italian bond yields at its next policy meeting on September 6. It was last trading at $1.2525, down 0.3 percent and below Thursday's peak of $1.2590, its highest since early July.
"After three particularly good days it would not surprise me today if we have a bit of a pullback to get better levels to buy in," said Daragh Maher, currency strategist at HSBC. The common currency also lost ground against the Swedish crown and the British pound on talk of selling by an European central bank that has been actively diversifying its euro holdings into other currencies.
Investors awaited a meeting between Greek Prime Minister Antonis Samaras and German Chancellor Angela Merkel on Friday, although any flexibility on Greek austerity measures is unlikely to be discussed before at least September. Some strategists said the euro is likely to trade in a $1.23-1.27 range in the coming weeks as investors gear up for crucial developments next month.
After the ECB meeting on September 6, there are Dutch elections and a German Constitutional Court ruling on the eurozone rescue fund on September 12 and an EU finance ministers' meeting starting on September 14. "It is not a bullish euro story given all the events next month. But the US is not looking good either. So we are looking at buying other currencies like the Swedish and Norwegian crown and selling the euro," said Stuart Frost, head of Absolute Returns and Currency at fund managers RWC Capital.
The dollar was flat at 78.50 yen while against a basket of the currencies, the dollar index climbed 0.2 percent to 81.531. It fell to a two-month low of 81.221 on Thursday. The Australian dollar fell to a four-week low against the US dollar of US $1.0378, hurt by concerns over slowing growth in China and continuing debate whether the country's mining boom was coming to an end. Sterling dropped to $1.5821 from $1.5845 after an upward revision of UK gross domestic product was in line with expectations, wrongfooting some who expected a shallower recession.