The euro edged higher from a six-week low against the US dollar on Thursday as investors shrugged off worries about Greece and refocused attention on higher interest rates in the eurozone. The European Central Bank's April interest rate rise was "certainly not" a one-off move as inflation risks in the eurozone have increased and price pressures are building, ECB policymaker Luc Coene said.
Expectations of rising rates in the eurozone even as the Federal Reserve remains committed to keeping borrowing costs near zero have pushed the euro up near $1.50. But the currency has pulled back lately after the European Central Bank dented hopes of a rate hike next month.
"Certainly the market is fixated on interest rate expectations and talk of a potential interest rate hike could give the euro a boost," said Gareth Sylvester, senior currency strategist at San Francisco-based Klarity FX. The ECB raised interest rates by 25 basis points to 1.25 percent in April to address firming price pressures, ending two years of crisis-induced loose policy. Financial markets expect two more such rises this year.
The euro was last up 0.3 percent at $1.4241 after rising to a session peak of $1.4277 on trading platform EBS. It earlier hit a session low of $1.4123, the weakest level since April 1. Traders noted euro buying from sovereign accounts in the $1.41 area. Offers are now seen around $1.4280. Analysts said the single currency was likely to remain under pressure from eurozone periphery woes. Speculation over whether Greece will receive more bailout funding kept risk appetite volatile as investors continued to price in a high probability that the country will eventually need to restructure its debt.
"If uncertainty is lifted behind what's going on with Greece, people will likely refocus attention on inflation, the ECB's potential for rate normalisation and the Fed's likely status quo of remaining on the sidelines for at least the next six months to a year," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
The euro earlier fell to 114.16 yen, its lowest since March 24, before rebounding to 115.19 yen, up 0.1 percent. Part of the euro's turnaround came after US economic reports sent mixed signals.
The dollar index, which measures the greenback against a basket of currencies, rose as high as 75.645. That was its strongest in more than three weeks, taking it well above a three-year low touched only last week, before it surrendered gains to trade at 75.174, down 0.2 percent. Against the yen, the dollar slipped 0.2 percent to 80.89. Among commodity-linked currencies, the Australian dollar fell to a one-week low after surprisingly weak Australian jobs data reduced market expectations of a rate hike.