The euro eased versus the dollar on Friday but still hovered near a 7-week high hit the previous day, its downside seen limited in the near term by the potential for the further unwinding of euro short positions. The euro, which rose after Fed minutes on Wednesday suggested the US central bank may opt for more monetary stimulus "fairly soon", got a further lift on Thursday after sources said Spain is negotiating with the eurozone over conditions for aid.
The Spain news helped offset a scaling back in expectations of an imminent US easing after St. Louis Federal Reserve President James Bullard said the minutes are a bit stale given stronger data since the Fed's last policy meeting. The euro dipped 0.1 percent to $1.2554, having hit a high of $1.2590 the previous day on trading platform EBS, its highest level in about seven weeks.
Against the Australian dollar, the euro touched a six-week high of A$1.2047 earlier on Friday. "The moves that have taken place are nothing more than position unwinding," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, referring to the trimming back of euro-bearish bets.
The euro has bounced since hitting a two-year low of $1.2042 in late July, buoyed by expectations that the European Central Bank will announce plans to help lower Spanish and Italian bond yields at its policy meeting on September 6. The medium-term outlook for the euro remains murky, but the single currency might rise to around $1.27 to $1.28 in the near term, said Sim Moh Siong, FX strategist for Bank of Singapore. The dollar, which had slid against the yen following the release of the Fed minutes on Wednesday, gained a bit of respite versus the Japanese currency, rising 0.1 percent to 78.59 yen.