The euro rose against the dollar on Wednesday in cautious trade ahead of a U.S. interest rate decision, pulled higher as the single currency hit a 7-week high against the pound after disappointing UK jobs numbers.
Data showed the number of Britons claiming jobless benefit rose by the largest amount on record last month, and the wider level of unemployment rose above 2 million for the first time since 1997.
The euro jumped above 94 pence for the first time since late January and pushed back above the $1.30 level against the dollar -- although gains were limited on jitters ahead of the Federal Reserve rate decision at 1815 GMT (2:15 a.m. EDT).
"Euro/sterling trended sharply higher after the disappointing employment numbers in the UK and that has flowed through into euro/dollar buying," said Rabobank strategist Jeremy Stretch.
An improvement in sentiment, which saw European shares up 0.3 percent and U.S. stock futures reverse earlier losses to point to a mostly better open on Wall Street, were also supporting the euro.
At 1123 GMT (7:23 a.m. EDT), the euro was 0.2 percent up against the dollar at $1.3043. The greenback was also pressured after news that a U.N. panel of experts will recommend next week that the world should ditch the U.S. currency as its reserve currency in favor of a shared basket of currencies, Stretch said.
The euro was 1.38 percent higher at 93.89 pence, having earlier risen as far as 94.15 pence, while sterling also fell 1.14 percent against the dollar to $1.3887.
"A shocker claimant count at +138k. Sell sterling, buy gilts," said Lloyds Group economist Kenneth Broux.
"Manufacturing jobs continue to disappear at a frightening rate. It's an illusion to believe that a lower pound will support exports. What you need in the first place is foreign demand and that isn't there right now."
FED, BOJ RATE DECISIONS
The Federal Open Market Committee is expected to leave interest rates on hold at zero to 0.25 percent, with focus centered on whether it will announce any additional measures to expand its credit easing policies.
In particular, investors will be looking for any hints on whether it is moving toward -- or away from -- buying long-term U.S. government debt, though most analysts believe they will concentrate on the existing measures they have in place.
Commerzbank currency strategist Antje Praefcke noted that expectations the Fed will announce a move toward buying U.S. government debt have gained traction after the Bank of Japan announced plans to increase buying of Japanese government bonds, although the market may ultimately be disappointed.
The yen steadied but remained weak, with the euro staying close to an earlier 11-week high of 128.83 yen hit on EBS trading platform.
Selling was limited, however, with repatriation by Japanese investors ahead of the fiscal year-end at the end of this month preventing the currency from falling too much.
The dollar was flat at 98.60 yen, while the euro was 0.25 percent higher at 128.60 yen.
The Bank of Japan said overnight it was holding interest rates steady at 0.10 percent and increasing its outright buying of Japanese government bonds to 1.8 trillion yen ($18.28 billion) per month from 1.
The yen showed little reaction to the news, as other central banks, notably in the UK and Switzerland, have already announced aggressive monetary easing measures.
