The euro inched up versus the dollar and held near a two-month high on Friday while the safe haven yen nursed heavy losses as markets cheered the European Central Bank's plan to tackle the region's debt crisis. ECB President Mario Draghi, backing up his promise to do whatever it takes to defend the euro, announced a new and potentially unlimited bond-buying programme on Thursday aimed at lowering painfully high borrowing costs for stressed member states.
"The ECB's actions afford time, allowing risk appetite to stage a comeback for now," said Vincent Chaigneau, a strategist at Societe Generale. "Draghi has won a battle, but cannot win the euro area crisis war by himself. The hardest task of all - getting governments to drop posturing in return for leadership and deep reforms - still awaits us."
The euro rose 0.1 percent to $1.26 40, hovering near a peak of $1.2652 hit o n Thursday o n trading platform EBS, its highest level since early July. The single currency inched up 0. 1 percent against the safe haven yen to 99.7 5 yen, near Thursday's two-month high of 99.80 yen. Some traders and analysts said the euro may rise further against the dollar in the near term due to the potential for more position squaring, but others we re cautious about the outlook.
The ECB's bond-buying scheme could boost European equities and spur falls in Italian and Spanish bond yields over the next few months, but implications for the euro seem more mixed, said Greg Gibbs, senior FX strategist for RBS in Singapore. "While positive for European assets, it is quantitative easing or does imply that the ECB is now in a place where it will potentially do a lot of quantitative easing," Gibbs said, adding that the ECB's balance sheet could expand due to the bond-buying programme.
The dollar inched up 0.1 percent to 78.9 2 yen. But the yen stabilised after sliding broadly on Thursday, when stronger-than-expected data on US private-sector employment triggered a rise in Treasury yields and helped drag the Japanese currency lower versus the dollar. With the ECB steps likely to help boost investors' tolerance for risk, the yen may be set to weaken further on the crosses, said Tohru Sasaki, chief foreign exchange strategist for J.P. Morgan Chase Bank in Tokyo.
"I don't think it is the case at all that everything will be okay from here on, but at least there is now a certain framework in place," Sasaki said, referring to the ECB's measures. The Australian dollar rose 0. 4 percent to $1.03 23, holding firm after having climbed roughly 0.9 percent on Thursday for its biggest one-day gain in a month as traders trimmed bearish bets against the commodity currency.