LONDON—The euro drifted higher during European trading hours Friday as thin dealing conditions helped the single currency regain all the ground it lost during the Asian session.
The euro was recently trading at $1.3796 compared with $1.3777 late Thursday in New York. The dollar was at ¥76.99 compared with ¥76.90, while the euro was at ¥106.22 compared with ¥105.96. Meanwhile, the pound was trading at $1.5774 compared with $1.5767 late Thursday in New York.
The euro had come under pressure during Asian hours after Standard & Poor's Corp. downgraded Spain's sovereign-credit rating one notch to double-A-minus and after Fitch Ratings fired a warning shot at European and U.S. banks late Thursday.
But reports that finance officials from the Group of 20 industrialized and developing economies meeting in Paris are considering boosting the International Monetary Fund's lending capacity to help the euro zone allowed traders to shrug off some of these concerns.
That gave the common currency a boost to as high as $1.3828 and to ¥106, even as the gap in yields between France's 10-year government debt and that of Germany widened to a euro-era high of 0.91 percentage point. This hints at concerns over France. The cost of insuring European government debt against default also rose slightly.
"People have been ignoring the bad news and are even more hopeful of good U.S. news later," said Sebastien Galy, senior currency strategist at Société Générale in London. Advance September retail sales at 1230 GMT (0830 ET) and the University of Michigan survey of consumers at 1355 GMT (0955 ET) are due.
The key technical level for the euro now is $1.3848, according to Mr. Galy, who said he sees a good chance that we will touch or even break that level soon.
Where the euro goes from there could depend on the G-20 finance ministers' meeting. "Markets appear to be stuck in a range, waiting for their next cue to come from policy makers," said Adam Cole, chief currency strategist at RBC Capital Markets. He added that while positive sentiment prevails, it is with "less conviction than earlier this week and it feels like we need some bigger policy decisions to take another leg up."
