The euro consolidated its gains on Friday after a strong performance in the previous session as acute concerns over the fiscal problems in the eurozone eased.
The euro rose more than 1 per cent against the dollar on Thursday, helped by a successful Spanish government bond auction, which eased some concerns over the country’s ability to service its debts.
The single currency also received support as the Chinese state pension fund, a large holder of euro reserves, maintained its commitment to hold assets in the currency.
A decision from the German constitutional court to reject an injunction to prevent the country from contributing to the eurozone rescue package also boosted the euro.
More generally, investor risk appetite was boosted by strong Chinese export data, which raised expectations over the strength of the global economic recovery. This boosted global equity markets and weighed on haven demand for the dollar and the yen.
But analysts doubted whether the rally in the euro could last.
Daragh Maher at Crédit Agricole said much of the drive lower in equity markets and the associated moves in FX in recent weeks have been driven by fear it was somewhat inevitable that markets enjoy a relief rally based on little more than the comfort that nothing bad had happened.
“For now, it looks like the dollar and the yen will be a little weaker, and other currencies stronger,” he said.
“But if the more buoyant mood can be sustained, we suspect that a greater degree of rational differentiation among the likely ‘winners’ in an environment of rising risk appetite. The euro, despite its current relief, is unlikely to be at the forefront.”
The euro edged 0.1 per cent higher to $1.2118 against the dollar on Friday, gained 0.3 per cent to Y110.95 against the yen and was 0.3 per cent stronger at £0.8261 against the pound.
Sterling also suffered elsewhere after figures showed UK manufacturing production dropped unexpectedly for the first time in three months.
The pound fell 0.2 per cent to $1.4665 against the dollar.
Elsewhere, the dollar was up 0.2 per cent at Y91.58 against the yen, but 0.1 per cent weaker at SFr1.1420 against the Swiss franc.
