NEW YORK (Dow Jones)--The euro jumped by about 1.7% against the dollar Thursday in its biggest one-day gain since July, after solid euro-zone bond auctions sparked traders to buy back the single currency, reversing its sharp sell-off earlier this week.
The euro rose broadly Thursday, also pushing up against the yen and the Swiss franc, following encouraging debt auctions in Spain and Italy that reduced investors' jitters about fiscal troubles in the euro zone. The single currency has surged by more than four cents now from a four-month low of $1.2860 that it hit three days ago.
Solid sovereign debt auction results have helped boost the euro. Spain and Italy are seen as the euro-zone nations most at risk of falling into a financing crisis as sharp as Greece and Ireland's, requiring a bailout. Their bond auctions Thursday, however, attracted strong demand, even though investors pushed for higher yields. The solid results came after a better-than-expected Portuguese debt sale Wednesday, which also helped the euro.
"Markets had generally looked upon these bond auctions as not being successful, and in fact they were," said Michael Woolfolk senior currency strategist at BNY Mellon in New York. The euro has even more room to rally from here, Woolfolk said, citing a near-term ceiling of around $1.3500; a level last seen in mid-December.
Three days after falling to a four-month low against both the dollar and yen, the euro was also bolstered after European Central Bank President Jean-Claude Trichet highlighted inflation risks and raised the specter of potentially higher borrowing costs. Higher interest rates would increase demand for the euro, as the comparatively lower rates in the U.S. would send investors in search of higher returns of euro-denominated assets. His comments helped to restrain those traders who are still bearish on the euro.
Speculation has been rampant as well that a deal on extending the European Financial Stability Facility, the euro zone's bailout fund, could be imminent. That has helped the euro to, at least temporarily, overcome much of the negativity that has dogged it in recent sessions.
Still, investors remain nervous about Europe's ability to contain the fallout from the financial crisis that has roiled the euro zone. Several noted that the currency followed a similar relief rally after Greece and Ireland were bailed out, only to have debt concerns resurface.
"I think it's going to be extremely difficult [for Europe] to snuff out the entire crisis without massive change," said Andrew Wilkinson, senior market analyst at Interactive Brokers.
Woolfolk said the euro could soon break down once again, falling under the $1.30 level. One possible outcome, said Woolfolk, is that Germany and France could push Portugal to adopt a financial bailout package to stem contagion in the area. "Then, all eyes turn toward Spain," he said.
Meantime Thursday, the dollar weakened after data showed the number of U.S. workers filing new claims for jobless benefits jumped last week, by 35,000 to 445,000, versus expectations for a drop of 2,000. Even as an economic rebound has gained pace in the U.S., the labor market remains stubbornly weak and many expect improvements will be gradual.
Late Thursday, the euro was at $1.3364 from $1.3131 late Wednesday, according to EBS via CQG. The dollar was at Y82.80 from Y83.01, while the euro was at Y110.67 from Y109.02. The U.K. pound was at $1.5835 from about $1.5763. The dollar was at CHF0.9637 from CHF0.9666.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 79.155 from about 80.031.
For the euro's performance against the dollar, please see:
http://www.dowjoneswebservices.com/chart/view/5270
-By Javier E. David, Dow Jones Newswires; 212-416-4564; javier.david@dowjones.com
