The euro bounced above $1.35 yesterday, hitting the best levels since November as investors fretted over poor US data ahead of talks between US President Barack Obama and China’s Hu Jintao.
The dollar also fell broadly after the yuan was set at a record high against the US unit ahead of the Washington talks that were widely expected to touch on US demands that Beijing let its currency rise faster.
The shared eurozone unit rallied as high as $1.3539 – the highest level since November 23. It late London trade it fell back $1.3492, up from $1.3389 dollars late in New York on Tuesday.
The dollar stood at 82.06 yen versus 82.55 late on Tuesday.
“The backdrop to this euro strength is the meetings of European officials that concluded (Tuesday) with the eurozone finance ministers’ conference,” said Kathleen Brooks, research director at trading site Forex.com.
“Although there was a slight hope last week that a solution to the sovereign debt crisis might be found at this week’s meetings they have ended with very little progress toward a credible permanent solution.” European finance ministers met Tuesday for a second day to discuss increasing the 440-billion-euro European Financial Stability Facility (EFSF), which is an emergency lending mechanism for troubled eurozone countries.
Some dealers cautioned that despite the more positive tone from the Brussels meeting, there was still no agreement on what precisely should be done and this could pose problems in due course.
“We now have to wait until March before ministers will decide on the fate of the EFSF fund, while the fresh round of European banking stress tests are due to start in February but the results won’t be disclosed until July. So the can gets kicked down the road yet again,” Ms Brooks said.
The market was also watching whether US officials would comment on what they see as the Chinese yuan’s undervaluation against the dollar as President Hu went into talks with his US counterpart.
“On the US dollar side things are expected to be fairly chilly with the Chinese PM visiting Washington to discuss, amongst other things, the value of the yuan which is a hot button topic on Capitol Hill,” said Michael Hewson of CMC Markets.
Mr Hu, who met Mr Obama in Washington yesterday, has repeatedly resisted demands for a quick fix of the yuan’s exchange rate, saying Beijing will reform its currency system slowly but steadily and without outside interference.
Neither Mr Obama nor Mr Hu mentioned the currency issue in remarks to journalists before their talks began.
But China’s setting of the yuan’s central parity rate – the middle of the unit’s allowed trading band – at a fresh record high yesterday stirred speculation that Beijing may continue to let its currency rise further.
The yuan was set at 6.5885 to the dollar in Asia earlier yesterday.
Also hurting the dollar yesterday were expectations that US housing data will likely not be strong enough to prompt the Federal Reserve to consider scaling back its massive government bond buying operations, dealers said.