The euro strengthened in European trading Friday as hopes built that the global economy might be in better shape than previously thought.
The better tone kicked off in Asian hours after the Monetary Authority of Singapore wrong footed investors by keeping its interest rates unchanged and the People's Bank of China guided the yuan sharply higher against the dollar in an apparent conciliatory gesture to U.S. exchange-rate hawks ahead of the U.S. presidential elections.
The more confident mood was also supported by the absence of any concerted selloff in European markets Thursday in the wake of Spain's credit downgrade by Standard & Poor's Corp. to near-junk territory.
"The lack of reaction shows that investors are reassured that the European Central Bank will provide an effective backstop if necessary," said Lee Hardman, a currency strategist at the Bank of Tokyo-Mitsubishi UFJ in London.
Spanish government bond yields were tighter on the day, underscoring the current lack of nervousness among investors over Spain's continued reluctance to request financial help from the ECB.
Adding to the mix was economic data from the euro zone, which showed industrial production in the union growing 0.6% in August from July. Economists surveyed by Dow Jones last week had forecast a decline in production of 0.4% on the month.
"[The] rise in euro-zone industrial production suggests that gross domestic product is unlikely to have contracted as sharply as the more downbeat business surveys suggest in the third quarter," said Capital Economics in a client note. The research house went as far as to suggest that euro-area GDP might have even expanded slightly, assuming September's industrial production data came in unchanged.
Emerging markets currencies were firmer, in line with the more robust investor sentiment, with the South African rand the standout performer after reports that South African unions representing tens of thousands of striking truckers were set to sign a wage agreement Friday.
Late in the European morning, the euro was trading at $1.2977 compared with $1.2928 late Thursday in New York. The dollar was at ¥78.42 from ¥78.37 and sterling was trading at $1.6074 from $1.6044.
The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at about 69.677 from 69.797.
