* Euro hits strongest since Feb 2012 vs dollar
* Euro continues to rise after ECB meeting last week
* Japan PM comments add to expectations of aggressive BOJ
* Yen hits 2-1/2 year low versus dollar, 20-mth low versus
By Jessica Mortimer
LONDON, Jan 14 The euro hit an 11-month high
against the dollar on Monday and extended gains versus the yen
as Japan put more pressure on its central bank and the European
Central Bank dampened the chances of a euro zone rate cut.
A more positive stance from euro zone policymakers left room
for further gains in the euro, traders and analysts said,
especially given the contrast with expectations for aggressive
monetary easing in Japan.
Japanese Prime Minister Shinzo Abe said on Sunday the
central bank must set 2 percent inflation target as a medium-,
not long-term objective. This pushed the yen to a fresh 2-1/2
year low against the dollar and 20-month low against the euro.
ECB President Mario Draghi last Thursday suggested an
interest rate cut was off the agenda for now and pointed to
signs of improvement in the euro zone economy and in financial
The euro was up 0.1 percent against the dollar at
$1.3360, having earlier risen as high as $1.3404, its strongest
since late February 2012.
Technical analysts said the euro's firm break above chart
resistance at $1.33, a level it failed to breach in mid-December
and again in early January, left scope for more gains.
"Given the correlation between the euro and equity markets,
the euro should trade higher, towards $1.35 or $1.36, though
levels between $1.35 and $1.40 start to look expensive and
that's not what the euro zone needs right now," said Richard
Falkenhall, currency strategist at SEB.
"There are small positive signs coming from the euro zone
which Draghi pointed at, and this caught the market."
Against the yen, the euro was up 0.4 percent at 119.40 yen
, having earlier hit 120.13 yen, its highest since May
2011. This came on top of a rise of more than 3 percent last
SEB's Falkenhall said improvements in euro sentiment since
the ECB announced a plan last year to buy the bonds of indebted
countries was contributing to the trend of yen weakness, as
previously the yen had gained on the back of euro zone worries.
Market players will watch for the release of euro zone
industrial output data at 1000 GMT, which is expected to show a
small rise of 0.1 percent during November. A weak number,
however, could dampen the euro's rally and highlight the
fragility of the euro zone economy.
Traders said the euro had rallied strongly during Asian
trade and could be due a pullback, although most expected it to
"I wouldn't be surprised if we see a small retracement, but
I think the euro will stay bid overall and any dips will be met
by good buying interest," a London-based trader said.
The dollar was up 0.25 percent at 89.41 yen,
having earlier breached an options barrier at 89.50 yen to hit
89.67 yen, its highest since June 2010.
But it could struggle ahead of another reported options
barrier at the psychologically key 90.00 yen level.
"The confirmation that there's going to be a push for a new
(BOJ) governor, that new governor is going to have a mandate of
2 percent inflation, that plus the fiscal stimulus is a major
negative for the yen," said Callum Henderson, global head of FX
research for Standard Chartered Bank in Singapore.
Japan last week approved a $117 bln stimulus package, the
biggest spending boost since the financial crisis, to try and
support the economy.
Rob Ryan, strategist for RBS in Singapore, said the dollar
could retreat against the yen after the BOJ's policy meeting
next week, if its policy decision is regarded as a
"The positioning is pretty stretched at this stage," Ryan
said, adding expectations for the BOJ meeting were "sky high".
Later on Monday, investors will turn their focus to a speech
by U.S. Federal Reserve Chairman Ben Bernanke for any hints on
how long the Fed's asset-buying programme will last.