FOREX-Euro edges higher on demand for peripheral bonds

Fri Jan 10, 2014 4:17am EST

Related Topics

* Euro extends move away from one-month low

* ECB had weighed on euro, but economic data offers support

* Investors to take lead from U.S. jobs data

By Laurence Fletcher

LONDON, Jan 10 (Reuters) - Demand for euro zone peripheral government bonds helped the euro extended its rebound from a one-month low against the dollar on Friday, as investors looked to U.S. jobs data for direction on the dollar.

The euro was last up marginally at $1.3611, having fallen as low as $1.3548 on Thursday.

The single currency - the top-performing major currency of 2013, although it has weakened this year - had fallen after the European Central Bank toughened its pledge to keep policy loose.

However, it later recovered, supported by ECB President Mario Draghi's comments that December's low inflation was due to technical factors, adding to the view that deflation may be less of a threat than some investors fear.

Strong demand for Spanish and Portuguese bond auctions this week, as investors continue to bet that the euro zone is on a surer footing, have helped drive demand for euros.

The single currency was also supported by news on Friday that the French economy - seen by many investors as a weak link in the euro zone - grew 0.5 percent in the fourth quarter, while Spanish and French industrial output figures were also robust.

"There's an anticipation of European data on the strong side," said Hans Redeker, head of global currency strategy at Morgan Stanley.

"You (also) have some corrective activity," he said, pointing out that investors who sold the euro after Draghi's comments would now be more concerned with U.S. jobs data later on Friday.

Traders said the greenback could easily rebound if non-farm payrolls surprised on the strong side and fuelled expectations that the Federal Reserve will scale back its bond-buying stimulus more quickly.

Economists polled by Reuters forecast that employers probably added 196,000 jobs, down from 203,000 in November, while the jobless rate would likely hold at a five-year low of 7.0 percent.

The dollar was last up 0.1 percent against the yen at 104.93 yen, edging towards a five-year high of 105.45 yen hit last week as the improving U.S. economic outlook heightened expectations that the Fed will speed up its stimulus reduction.

Janet Yellen, set to take over as head of the Fed next month, is "hopeful" that U.S. economic growth will accelerate in 2014 to reach 3 percent or more and persistently low inflation will move up toward the central bank's target, she was cited saying in a Time magazine interview published online on Thursday.

"Most of my colleagues on the Fed's policymaking committee and I are hopeful that the first digit (of GDP growth) could be 3 rather than 2," Yellen said in the interview.

The Australian dollar traded at $0.8896, slightly higher on the day, underpinned by trade data from China, Australia's key export market.

China's export growth slowed more than expected in December due to a higher comparison base a year earlier and a clampdown on speculative activities. But China posted an 8.3 percent jump in imports versus forecasts of 5.3 percent, and the outlook for trade in 2014 is expected to be brighter as global demand picks up.

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