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The euro rose above $1.36 against the dollar for the first time in more than a year as confidence on the eurozone continued to build.
The single currency gained 0.5 per cent to hit $1.3657 against the US currency, helped by signs of an improvement in the Spanish and Italian economies.
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Figures released on Friday morning showed that while Italy’s manufacturing sector continued to contract in January, it did so at its slowest rate since last March. The purchasing managers' index for the eurozone as a whole showed that manufacturing was contracting at its slowest rate in 11 months.
The US dollar was mixed against other major currencies ahead of crucial jobs figures due out at 13.30 GMT. Analysts were expecting data to show that non-farm payrolls in the US increased by 165,000 in January, which would mark a further upturn in the US economy.
The dollar was 0.6 per cent higher against the Japanese yen at Y92.30 ahead of the figures, as analysts said that a lower-than-expected number could cause yen strength as markets would move to price in more monetary easing from the Fed.
“The market sensitivity to data should be monitored via the dollar-yen, where we expect any disappointment to be met with the most modest of setbacks, as markets expect Fed policy to remain the driving force for financial markets,” said analysts at Morgan Stanley.
The Australian dollar underperformed other major currencies after figures showed a contraction in Australian manufacturing and conditions in China, a major trading partner with Australia.
The Aussie dollar fell 0.6 per cent against the US dollar to $1.0361 as PMI figures showed the Australian manufacturing sector contracted at a faster rate in January, while PMI figures for China showed a slower rate of growth.
The pound also suffered from figures showing slower growth than expected in the UK manufacturing sector in January.
Sterling fell more than 0.1 per cent against the US dollar to $1.5830 and was 0.7 per cent lower against the euro at €1.1591.
“While UK fundamentals are poor we would attribute a lot of the weakness in the pound in recent months to the improvement in confidence with respect to the European monetary union and the reversal of euro diversification trades which propped up the pound in the first half of last year,” said Jane Foley, analyst at Rabobank.
