FOREX-Euro at four-year high vs yen on German coalition deal
* Major German parties reach deal on grand coalition * Euro at near 1-month high vs dollar, four-year high vs yen * U.S. jobless claims drop in latest week * Volume light before U.S. Thanksgiving holiday By Julie Haviv NEW YORK, Nov 27 (Reuters) - The euro soared to its highest in four years against the yen and a near one-month peak versus the dollar on Wednesday after Germany's two major parties reached a deal on forming a grand coalition. German Chancellor Angela Merkel's conservatives clinched a deal with the Social Democrats, triggering a relief rally for the euro. A new government should be formed before year-end. The lengthy talks ahead of the deal delayed movement on major European reforms, including the creation of a "banking union", an ambitious project designed to prevent a recurrence of the euro zone's crippling debt crisis. The euro also garnered support from a survey showing German consumer sentiment at a six-year high. This followed unexpectedly robust Ifo business sentiment figures issued last week. Volume was light in New York trade ahead of Thursday's Thanksgiving Day holiday during which U.S. financial markets will be closed. "The coalition agreement in Germany suggests an expansionary budget, which should be positive for the euro," said Hans Redeker, head of global foreign exchange strategy at Morgan Stanley. However, he said levels above $1.36 provided opportunities to sell the euro, which has gained more than 2 percent since the European Central Bank cut interest rates earlier this month. The euro last traded up 0.2 percent at $1.3594, below an earlier high of $1.3612, its strongest since Oct. 31. The single currency also hit 138.54 yen, giving it the potential to target the 2009 peak of 139.26 yen. It last traded at 138.48 yen, up 0.8 percent on the day. Concerns remained about a weak euro zone economy and deflationary pressures that may prompt further action from the European Central Bank. However, euro zone inflation data on Friday is expected to show a small acceleration, an outcome that could help the euro. "Looking ahead, the key focus in Europe this week is the euro area November CPI report on Friday," Barclays Capital said. "Judging from recent market trends, notably the rise in the euro and euro real yields, it would seem investors may be worried that any action by the ECB to offset deflation risks will not be enough," the bank said. The dollar, meanwhile, held losses versus the euro and remained higher against the yen after mixed U.S. data. The number of Americans filing new claims for unemployment benefits unexpectedly fell last week. While the jobs picture is brightening a bit, factory activity appears to be losing momentum, with business spending on capital goods weakening and new orders for long-lasting manufactured goods falling last month. "The grand coalition in Germany removes a big political uncertainty and will support the euro in the short term," said Arne Lohmann Rasmussen, head of currency research at Danske Bank in Copenhagen. He and other analysts expected euro gains against the dollar would be limited due to the prospect of further monetary easing from the ECB and of the U.S. Federal Reserve scaling back stimulus next year. Rasmussen recommended selling the euro if it strengthened to $1.37/$1.38. The dollar was up 0.5 percent against the yen at 101.82 yen, with the low-yielding Japanese currency pressured by higher Japanese equities. This took it close to Monday's six-month high of 101.91 yen. Investors were also watching developments in the East China Sea, after two U.S. B-52 bombers on a training mission flew over disputed islands without informing Beijing.
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