The euro rose against the dollar today after strong growth data in Germany and France bolstered expectations a healthy euro zone economy will keep interest rates in the region higher than their US equivalents.
But some analysts said the euro's rebound from recent losses could prove short-lived as concerns about debt problems in peripheral euro zone states may outweigh rate differentials.
A close in the single currency below its 55-day moving average around $1.4272 could point to further losses, technical analysts said.
The euro rose as high as $1.4340 after strong first-quarter GDP data from the euro zone's biggest economies prompted demand from Asian sovereign names, European real money accounts and leveraged funds.
Market participants said higher commodity and share prices also helped stoke demand for riskier assets after they took a hit this week, and that the single currency may gain more during the day as investors continue to cover short euro positions.
"Today's move is really a relief rally on the back of the stronger GDP figures," said Lee Hardman, currency economist at BTM-UFJ. "But there is still divergence in the growth performance in the (euro zone) member states.
"We still believe a weak euro will be required for a solution to the euro zone's problems, and we don't think this near-term bounce will be sustained," he said.
The euro was 0.3 per cent higher on the day at $1.4280 but off the day's highs, with traders citing an Asian sovereign name selling around the session peak.
The German economy grew 1.5 per cent in January-March from the previous quarter, while French GDP rose 1.0 per cent. Both readings exceeded forecasts, as did an 0.8 per cent rise in the overall euro zone economy.
However, figures also showed Portugal entered a technical recession, highlighting the growth gulf between countries in the region.
The data helped the euro recover from recent sharp falls triggered by talk Greece may need to restructure its debts.
The dollar also gave back some of the gains made in the past week as a rout in commodity prices hurt risk appetite, prompting unwinding of dollar-funded bets on risky assets. The dollar slipped 0.2 per cent versus a currency basket to 75.076.
"We've had the stronger European GDP numbers ... and it's starting to feel like we're getting to the end of the risk aversion trade," said Geoff Kendrick, currency strategist at Nomura.
Today's euro zone GDP data added weight to the view that a buoyant economy will add to inflation risks, making the European Central Bank more likely to raise rates in the coming months, while the US Federal Reserve is expected to keep policy loose.
A meeting of Eurogroup finance ministers on Monday, followed by an Ecofin meeting of EU finance ministers, could provide further direction to the single currency.
There are doubts whether a substantial agreement to help Greece manage its debts is likely to emerge from the meetings, keeping uncertainty high over how long the country can avoid a restructuring and making some investors reluctant to load up too much on risky assets, analysts said.
Reuters
