The euro rose on Wednesday to a 14-month high against the dollar on speculation the European Central Bank will signal further interest rate rises following an expected increase this week, though there's room for disappointment. The yen slid to an 11-month low against the euro and a six-month low against the dollar.
More losses were expected for the yen as investors such as macro hedge funds add to bearish bets with the Bank of Japan looking set to lag other central banks in tightening policy. The expectation for higher eurozone rates contrasted with uncertainty in the United States over when the Federal Reserve may begin to tighten policy. The US economy remains too fragile for the Fed to begin raising rates, Atlanta Fed President Dennis Lockhart said on Wednesday.
The euro rose as high as $1.4350, according to Reuters data, its highest since late January 2010. It was last up 0.8 percent at $1.4334, shrugging off an announcement from Portugal's caretaker government that it needs financing from the European Union. Traders reported steady buying by Asian central banks, but said large option barriers cited at $1.4350 and $1.4400 could cap gains in the near term.
Citigroup currency strategist Todd Elmer said eurozone rate expectations are close to their recent peaks, with money markets discounting more than 100 basis points of ECB tightening through November. The struggling yen was in danger of breaching key long-term support levels against most currencies, having already fallen to a 2-1/2-year low against the Australian dollar.
The yen has slid since the first G7 intervention in a decade last month after the earthquake in Japan, stirring talk of a carry trade revival - a strategy of selling low-yielding currencies to fund investment in currencies with higher interest rates. The euro was up 1.4 percent at 122.45 yen, having earlier touched an 11-month peak, with stop-loss buying earlier in the session adding to its rise.
The dollar was up 0.6 percent at 85.43 yen, after hitting a six-month peak of 85.52 yen, almost 10 yen above its record low of 76.25 yen hit in March, days after Japan's northeast was devastated by a massive earthquake and tsunami. The high-yielding Australian dollar surged to 89.28 yen, its highest since September 2008, with 90 yen seen as the next possible target. Against a basket of currencies, the dollar was down 0.5 percent at 75.540.