TOKYO, Feb 18 - The euro rose to record highs against the dollar on Wednesday, taking its cue from the U.S. unit's broad-based losses, notably against high-yielding currencies such as the British pound. Receding concern that the European Central Bank (ECB) would intervene in the market or cut interest rates also emboldened traders to test the European authorities' resolve to curb the euro's strength, traders said. "The perception is that the ECB won't intervene unless the euro rises much higher, so the natural reaction is to buy euros when other currencies are so strong against the dollar," said Takashi Toyahara, foreign exchange manager at Nomura Securities. He said that ECB President Jean-Claude Trichet's comments earlier in the week did not suggest that the central bank was about to go beyond just stating its concern about market volatility and actually act against the euro's strength.
The euro rose to around $1.2920 by 0700 GMT, up more than half a percent on the day and 3.5 percent since the start of the month. Traders noted that the dollar's across-the-board losses were led by its declines against high-yielding currencies like sterling and the Australian dollar. Sterling rose more than half a cent on the day to hit 11-year highs around $1.9125 , while the Australian dollar rose a quarter U.S. cent to climb above $0.80 for the first time in seven years. Britain's key interest rate stands at 4.0 percent while the U.S. federal funds rate target is 1.0 percent. Traders were keeping a close eye on the minutes of the Bank of England's February Monetary Policy Committee meeting, due for release at 0930 GMT, for any clues on further rate rises ahead.
YEN STEADY
The yen failed to gain from surprisingly robust Japanese economic growth data as traders kept cautious amid suspicions that Japanese authorities stepped into the market to curb their currency's strength. Government data showed the Japanese economy expanded by 1.7 percent in October-December from the previous quarter, beating economists' expectations for an expansion of 1.1 percent. On an annualised basis, GDP grew a real 7.0 percent, well ahead of a 4.0 percent expansion in the United States in the same period. "The GDP data was much stronger than the market had expected, but the market is having difficulty selling the dollar versus the yen on spreading talk about dollar bid orders near 105.60 yen," said Yoshihiro Nomura, forex section manager at Trust & Custody Services Bank in Tokyo. The dollar was trading around 105.55/60 yen , virtually unchanged from Tuesday's late New York trading. Analysts said the data would likely give a boost to the yen in the long term and Japan may find it hard to justify stepping in to sell the yen. "The government may find it difficult to intervene in the currency market, given its case for such action -- that the yen should not strengthen when economic fundamentals are weak -- could be weakened," said Norihiro Fujito, senior investment strategist at Mitsubishi Securities. Still, Finance Minister Sadakazu Tanigaki said on Wednesday that it was too early to say that Japan had dug itself out of deflation, adding that the government had not changed its policy of intervening in the market to stem volatility.//