The euro fell from a 10-week peak against the dollar on Thursday, tracking benchmark German bund yields lower as they retreated from a 5-1/2-month high on a choppy day of trading. As Britons voted in the most uncertain elections in decades, the euro steadied close to a three-month high against sterling. Though the pound inched down against the dollar, it stayed in the range it has traded in for the past two weeks.
The greenback has fallen almost five percent in the last month on a run of weaker-than-expected data that has driven investors to push back bets on when the US Federal Reserve will start hiking interest rates, with some now not expecting rises until next year. Jobs figures released on Wednesday that showed US private sector employers hired the fewest workers in over a year in April compounded that view, raising a red flag for closely-watched non-farm payrolls numbers due on Friday.
Benefiting from the dollar's weakness, the euro had traded as high as $1.1392 as the German 10-year bund yield surged close to 0.8 percent. But as yields came off those highs, the single currency fell back below $1.13, trading half a percent lower on the day at $1.1295. "You've seen a repricing in the European yield curve ... and this is a reflection of monetary repricing, because investors thought yields had gone too low, and profit-taking, then on top of that you've had a pretty poor run of US data," said Peter Kinsella, FX strategist at Commerzbank in London.
The dollar had also been hurt by a warning on Wednesday from Fed Chair Janet Yellen about the potential dangers of high equity valuations, though Kinsella said that warning was the Fed signalling it was on course to raise rates in September. Having traded lower in European trade on Thursday, the dollar recovered some of its losses as US currency dealers arrived at their desks, trading at 94.357 against a basket of major currencies, up 0.3 percent on the day but still not far from a ten-week low of 93.882 hit on Wednesday.
Sterling slipped to 74.71 pence against the euro, its weakest since February 6. Britain's ruling Conservatives and opposition Labour have been neck-and-neck in opinion polls before Thursday's vote, indicating neither will win an outright majority in parliament. "The next 48 hours are going to be quite important, both in terms of the election and the payroll number tomorrow," said Phyllis Papadavid, senior FX strategist at BNP Paribas in London. The Norwegian crown rose to its strongest this year against the dollar after Norway's central bank left interest rates unchanged, trading at 7.3545 crowns. The Swiss franc, meanwhile, hit a two-week high against the euro on Thursday after data showed Switzerland's foreign exchange reserves fell in April, suggesting it may have held off on buying significant amounts of euros to weaken the Swiss franc.
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