* Euro lifted by better-than-forecast euro zone PMI
* Euro hits 14-month high vs dollar
* Yen hits 2-1/2 year low versus euro, dollar
* Focus on U.S. payrolls data at 1330 GMT
By Jessica Mortimer
LONDON, Feb 1 The euro rose to a 2-1/2 year high
against the yen and a 14-month peak against the dollar on
Friday, buoyed by better-than-expected euro zone manufacturing
data and bets of a firm U.S. jobs number.
A survey showed euro zone factories had their best month in
nearly a year during January, helped by solid German output,
adding weight to the view that the troubled region may be over
The euro rose more than 1 percent to hit 126.09
yen, its highest since April 2010, extending gains after
breaking above an options barrier at 126 yen.
Against the dollar, the euro also broke above a
similar barrier at $1.3650 to hit $1.3671, its strongest since
"The euro could continue to rise, depending on how the
European Central Bank reacts (to the euro's recent gains)," said
John Hardy, currency strategist at Saxo.
The ECB is already effectively supporting the euro by
running a less aggressively expansionary monetary policy overall
and banks are expected to contribute further to a crimping of
its balance sheet by committing to pay back more emergency
3-year loans early. Details are due at 1100 GMT.
The yen also remained under heavy selling pressure on
expectations of aggressive easing in Japan, with the dollar up
0.5 percent at 92.14 yen, having earlier hit 92.29 yen on
trading platform EBS, its highest since June 2010.
Traders said the yen's drop accelerated as market players in
Asia targeted and breached option barriers at 92.00 yen against
the dollar and 125.00 yen versus the euro.
Selling the yen has become a one-way bet with Japanese Prime
Minister Shinzo Abe heaping relentless pressure on the Bank of
Japan to ease monetary policy aggressively to jolt the economy
out of a decade-long malaise.
Traders said some investors were betting on a strong reading
of U.S. jobs data, due at 1330 GMT. That would knock the
safe-haven dollar against riskier, growth-linked currencies,
including the euro but boost it further against the yen.
Reuters polling predicts the numbers will show a rise of
160,000 jobs and the jobless rate staying steady at 7.8 percent.
The U.S. ISM factory survey, a national report on the state
of American manufacturers, is also due at 1500 GMT.
Saxo's Hardy warned, however, that currencies had already
moved so much that a reading in line with expectations could
disappoint the market.
"Now the bar has been raised by these moves and we will need
to see a significant upside surprise to push it further. If the
data is in-line to softer and if ISM data doesn't impress then
we could see a consolidation," he said.
But analysts expect the broad trend of euro strength and yen
weakness to continue, with some expecting the dollar to rise
towards 100 yen.
"We expect sustained weakness in the yen because of Abe's
aggressive policy changes," Michael Sneyd, analyst at BNP
Paribas, wrote in a client note. He sees the dollar reaching 95
yen in the first quarter of this year.
In contrast, worries about Europe's debt crisis are slowly
easing and the ECB's relatively more upbeat outlook for the
region have made the euro more attractive.
"Money is going back into Europe... It's a big sentiment
change more than anything else," said Jesper Bargmann, Asia head
of G11 spot FX for RBS in Singapore.
The Australian dollar slipped 0.5 percent to hit a one-month
low of $1.0364 after Chinese PMI data for January came
in slightly below expectations while Australian PMI was also