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FOREX-Higher risk demand boosts euro, Australian dollar

Published 07/08/2010, 12:09 PM
Updated 07/08/2010, 12:12 PM

* Euro touches 2-month high versus dollar

* ECB holds rates, sees uneven growth going forward

* U.S. initial jobless benefits claims fell in latest week

* Aussie jumps vs yen, dlr after jobs data beats forecasts

(Adds comments, details; changes dateline, previous LONDON, byline)

By Vivianne Rodrigues

NEW YORK, July 8 (Reuters) - The euro hit a two-month high against the dollar on Thursday as U.S. and Australian economic data restored faith in the global economic recovery and boosted appetite for higher yielding currencies.

New claims for U.S. unemployment insurance fell more than expected last week and several top U.S. retail chains reported stronger June same-store sales, supporting demand for stocks and other higher-risk assets. and

A jump in Australian employment in June drove the Australian dollar up more than 1 percent on the day against the dollar and nearly 2 percent higher against the yen.

Clarity on European bank stress tests helped financial stocks as investors saw criteria for the checks were no worse than markets expected.

"The euro continued to be supported by the overall elevated level of risk appetite," said Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington, D.C. "That got a little bit of a boost from this morning's positive initial jobless claims data."

"Global stocks are in broadly positive territory and commodities are pushing higher, so you would expect the euro to run up further against the U.S. dollar in that environment," he added.

The Australian dollar and other so-called commodity currencies, such as the Canadian dollar as well as the euro, are often seen as a gauge for investors' demand for riskier assets.

The euro climbed to as high as $1.2700, its highest since mid-May, according to Reuters data. It was last up 0.3 percent at $1.2669.

The European Central Bank earlier kept interest rates at a record low 1.0 percent at its monthly meeting.

ECB President Jean-Claude Trichet said at a press conference the economic recovery in the euro area continued in the first half of 2010. Looking ahead, he expected the euro area economy to grow "at a moderate and still uneven pace in an environment of high uncertainty."

Trichet offered few details on whether the upcoming stress tests will effectively gauge the health of European banks. The president reiterated his calls for full transparency of the results and said complete disclosure would boost confidence among investors.

Details on the test will be disclosed later this month.

Further declines in the U.S. dollar are likely, according to the International Monetary Fund. The greenback will depreciate in value "moderately" over the next five years, the Fund predicted on Thursday.

AUSTRALIAN DOLLAR RALLIES

The Australian dollar was 2.6 percent higher versus the yen at 76.75 yen, on the back of data showing Australia created 45,900 jobs in June, much higher than forecasts for 17,500. It rose around 1 percent on the day against the dollar to $0.8731.

The yen was one of the day's biggest losers as gains in European and U.S. stocks prompted investors to shed long positions in the low-yielding currency.

The dollar rose 0.9 percent to 88.53 yen, while the euro rose 1.3 percent against the Japanese currency to 112.32.

Sterling slipped 0.2 percent to $1.5152, pulling away from a two-month high of $1.5241 after an early rally triggered an unwinding of some long positions.

It barely moved after the Bank of England kept interest rates unchanged at a record low 0.5 percent, as widely expected.

(Additional reporting by Wanfeng Zhou in New York; Editing by Andrew Hay)

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