Euro nears one-year highs against dollar

LONDON — The European single currency consolidated gains near one-year highs against the dollar on Thursday as buoyant investors opted for riskier assets in the search for better returns, dealers said.

With US interest rates effectively at zero, the dollar has been bought during the global financial crisis for its safehaven attributes.

Now that the worst of the slump is believed to be over, investors are looking for higher returns, selling down the dollar to put their money into rising stocks and commodities.

Dealers say the dollar will likely continue under pressure in this way until the US economy shows enough strength to justify a hike in interest rates, which would make returns on the US currency more attractive again.

"The time will come when this strength in US data equates to dollar upside but that time is not yet here," said Daragh Maher of Calyon.

In late London trade Thursday, the euro was at 1.4736 dollars, coming off early highs at 1.4767 dollars, a level last seen on September 25, 2008, but still up from 1.4708 in New York late Wednesday.

The dollar edged up to 91.08 yen from 90.94 yen.

Dealers said they expect the euro to make further gains against the dollar, possibly to highs around 1.50.

"From a psychological point of view there are hardly any resistance (levels) ... around 1.4750 that could stand in the way of the euro moving on to the 1.4965 (November 2007 peak)," Commerzbank analysts said in a note.

"And there is little reason for the euro bulls to take profits as the dollar?s (interest) rate disadvantage still supports their view," they added.

Additionally, speculators continue to use the dollar to fund carry trades -- borrowing cheap dollars which they then convert to invest in higher-yielding assets elsewhere.

"It is such a nice environment for carry trades again -- better liquidity, rising risk appetite, lower foreign exchange volumes ... Everything fits so nicely," said Ulrich Leuchtmann, head of foreign exchange research at Commerzbank.

Federal Reserve chairman Ben Bernanke said this week that the recession in the United States was "very likely over."

Since December 2008, the US central bank has held its key interest rate at a record low range of zero to 0.25 percent to spur lending and economic activity.

The European Central Bank's main interest rate has stood at a record low of 1.0 percent since last May, offering an advantage over the dollar.

"Currency investors are searching for yield and the dollar is the lowest yielding because of ultra-low US interest rates," said GFT analyst David Morrison.

"Traders listen to Bernanke and think that this situation will continue for some time," he added.

In London trade on Thursday, the euro was changing hands at 1.4736 dollars against 1.4708 dollars late on Wednesday, at 134.35 yen (133.74), 0.8914 pounds (0.8922) and 1.5164 Swiss francs (1.5177).

The dollar stood at 91.08 yen (90.94) and 1.0208 Swiss francs (1.0317).

The pound was at 1.6549 dollars (1.6486).

On the London Bullion Market, the price of gold edged up to 1,018.50 dollars an ounce from 1,015.75 dollars an ounce late on Wednesday.

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