The euro hovered near a three-year high against the sagging dollar on Friday, while improving investor risk appetite weighed on the yen. The euro was 0.05 percent higher at $1.2074 after rising 0.45 percent overnight. The common currency received its latest boost overnight as data showed the euro zone economy closed out 2017 with the strongest growth in nearly seven years.
The euro has been supported as US-euro zone debt yield spreads have narrowed recently with the European Central Bank poised to curtail its massive stimulus programme and eventually join the Federal Reserve in normalising monetary policy. The euro has gained 0.6 percent so far this week and a rise above $1.2092 would take it to its highest level since January 2015.
Weighed down by the greenback's weakness against the euro, the dollar index against a basket of six major currencies was poised on a loss of 0.3 percent this week. It probed a three-month low of 91.751 on Tuesday and last stood at 91.838, headed for its third week of losses.
The US currency's lack of traction was highlighted overnight as the dollar failed to draw support from stronger-than-expected jobs report. US private employers added 250,000 jobs in December, data from ADP Research Institute showed, the biggest monthly increase since March.
The markets are now focused on Friday's US non-farm payrolls report, which is expected to show job gains of 190,000 for December. Given the dollar's recent poor showing, market participants reckon stronger-than-expected employment gains and growth in wages would be needed to turn fortunes around for the currency.
"It is the same theme from 2017 that is hurting the dollar, which is low inflation concerns, which in turn has capped Treasury yields," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. "The euro, on the other hand, is on a roll. We see the euro zone HICP figures out later today and if that proves to be strong, that could offset a decent US jobs report from the dollar's perspective," Ishikawa said.
The euro zone's harmonised index of consumer prices (HICP) for December is due later on Friday. "The euro looks solid at these levels. But if it were to gain further, it may have to brace for comments by officials concerned about the negative economic effects of a strong euro," said Shin Kadota, senior strategist at Barclays in Tokyo.
The common currency was near a 26-month high of 136.370 yen scaled overnight and on track for to gain 0.7 percent this week. The Australian dollar extended gains from the previous day and rose to $0.7870, its highest since October 20, before pulling back a little to $0.7854. The Aussie was on track for its fourth straight week of gains, with the recent surge in prices of commodities like copper and iron ore providing a lift.
The Canadian dollar has also benefited from surging commodities, with crude oil prices at their highest since 2015. The loonie was headed for its third straight week of gains, touching a 2-1/2-month high of C$1.2483 per dollar on Friday. The yen was a laggard within the major currencies, having sunk this week against its peers like the dollar, euro and Aussie.
The Japanese currency depreciated against the broadly weaker greenback due to increasing investor appetite for risk in the broader markets, which dimmed its allure as a perceived safe haven. The dollar was 0.1 percent higher at 112.830 yen, adding to modest gains from Thursday. It was little changed against the yen this week, during which it had momentarily slipped to a two-week low of 112.055.
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