NEW YORK — The euro climbed to the highest in nearly a week on Thursday as U.S. Treasury yields fell, pulling back from a two-year high, with the euro rebounding from losses from earlier in the week ahead of a policy meeting of the European Central Bank.
Investors shrugged off political uncertainty emerging from Spain before the ECB meeting next week where policymakers are expected to reveal plans to unwind their multi-year stimulus policies.
The euro briefly waned against the U.S. dollar after the release of U.S. jobless claims data, which showed the lowest reading in 44 years and a record high reading on the Philadelphia Fed Business Index.
"The problem the dollar’s having is that the good news is already priced in," said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co. "And that good news is the Fed is likely to hike rates in December."
The dollar index, which tracks the greenback against six major currencies, pared its losses after the report, but renewed selling soon after. It was last down 0.25 per cent at 93.125, its lowest since Monday.
The single currency rose 0.5 per cent to US$1.1849, its highest level since last Friday.
"It seems to be building on yesterday’s recovery, and it’s happening as U.S. rates are falling," Chandler said. "No big surprise."
Spain's central government said on Thursday it would suspend Catalonia's autonomy and impose direct rule after the region's leader threatened to go ahead with a formal declaration of independence if Madrid refused to hold talks.
While the euro has remained broadly impervious to political developments in recent weeks, investors said the single currency could run into some resistance around the US$1.1880 line, the 50 per cent trading range between September to October.
"The Catalonia thing is priced in now unless it blows up really badly and people seem to be happy going long euros before the ECB meeting next week," aid John Marley, head of FX strategy at Infinity international, a currency risk management firm.
The European Central Bank will likely say on Oct. 26 that it will start trimming its monthly asset purchases to 40 billion euros from 60 billion euros in January, according to a Reuters poll of economists.
The New Zealand dollar was the other big mover in currency markets, with the kiwi tanking nearly two per cent against the greenback, its biggest drop in nearly a year, after a surprise election victory for the country's Labour party.