|
 Signs that the labour market was recovering with initial jobless
claims dropping, wages rising along with a jump in Midwest business
activity all combined to draw investors back to the greenback.
Volumes, though, were on the lower side with most of Europe shut for
the May Day holiday and the focus now squarely on ISM manufacturing
data from the United States. In the UK, which was open for trading,
sterling fell sharply against the dollar <GBP=D4> and the euro <EURGBP=D4>
after British manufacturing data showed growth cooling before a
tightly-fought election.
The dollar rose against the yen, supported by Treasury yields' rise
in the wake of Thursday's upbeat U.S. data. The dollar was up 0.4
percent at 119.82 yen <JPY=>, pulling away from a one-month low of
118.50 plumbed on Thursday.
The dollar index was up 0.1 percent at 94.672 <.DXY>, having
suffered its worst month in four years in April.
"While it is true Thursday's data was good, we need a steady stream
of good data for the dollar bull trend to be restored," said Petr
Krpata, FX strategist at ING.
"Right now there is a fair bit of doubt about the dollar's bull run
and whether the euro will drop further. We think the euro will
resume its decline as the fundamentals have not changed and the last
thing that the European Central Bank needs now is a stronger euro."
Amid thin volumes, the euro hit a two-month high against the dollar
and the yen aided by a recent surge in German yields as fears of
deflation in Europe eased just a little.
Data this week suggesting the euro zone might be pulling out of
deflation sparked a rise in Bund yields, with the benchmark 10-year
yield reaching 0.386 percent, up some 20 basis points in two days.
That has pushed the EU/U.S. 10-year yield differential higher in
favour of the euro.
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Still, analysts remain sceptical whether the rise in the euro
especially against the dollar can last.
"Our analysis of the drivers behind euro/dollar suggests that it is
front-end rates rather than long-end yields that are more important,
implying that scope for the euro recovery is limited, in our view,"
Morgan Stanley analysts said in a note.
The euro last fetched $1.1265, having scaled a two-month high of
$1.1285 hit during the European session and clawing its way back
from a 12-year low of $1.0457 struck in March, when the ECB launched
its quantitative easing scheme.
Against the Japanese currency, the euro climbed as high as 135.36
yen, its highest since late February.
(Editing by Toby Chopra)
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