* Euro rises vs dollar to highest since December 2011
* Single currency hits 33-month high versus yen
* Wednesday loan repayment to ECB, Fed meeting in focus
* Yen slide resumes, more losses in store
By Anooja Debnath
LONDON, Jan 30 The euro rose to its highest
level in 14 months against the dollar and hit a 33-month peak
against the yen on Wednesday on brightening prospects for the
Analysts said it was likely to gain further, given
expectations that U.S. fourth-quarter gross domestic product
data, due later in the day, could show growth slowing.
The euro hit it highest since May 2010 against the yen on
expectations of further monetary stimulus in Japan. The single
currency rose to a 33-month high versus the yen of
123.53 yen, breaking past a reported option barrier at 123.00
In contrast, recent upbeat German data showed the euro
zone's biggest economy may be on a path of steady recovery,
while signs European banks may have turned the corner have
bolstered optimism that the worst of the bloc's debt crisis has
So positive is the momentum towards the euro that investors
brushed aside a sharp contraction in the Spanish economy.
The euro hit a 14-month high of $1.35280, rising past
an option barrier at $1.3500
"There is an increasing chance the euro could overshoot to
the upside to $1.3600, maybe even seeing the $1.40 area in
view," said Ian Stannard, head of European FX strategy at Morgan
"The policy initiative in Europe to stabilise the peripheral
asset markets is having quite a positive impact," he said,
adding that euro strength would be most evident in the crosses,
especially against the yen.
Investors, especially from Japan, have been keen to pour
money into euro zone assets, pushing the euro higher.
Some strategists, however, struck a more cautious tone,
warning the euro's gains could fizzle out unless there was more
upbeat data from the region.
"It is a fact that things are normalising in Europe. But it
is also a fact that the structural problems and issues remain
unresolved and could come back to haunt the euro," Sim Moh
Siong, FX strategist for Bank of Singapore, said, adding that
the near-term outlook for the single currency was positive.
On Wednesday, markets will look to the first euro zone
banks' repayments of three-year loans to the European Central
Bank as a sign that parts of the euro zone banking system may be
on the mend, and this could provide a lift to the euro.
Euro zone sentiment data due 1000 GMT is expected to show an
improvement in the economy, adding to the euro-positive mood
prevalent in markets, analysts said.
FEDERAL RESERVE MEETING
The euro could also get a lift from the outcome of the U.S.
Federal Reserve's first policy meeting of the year. The Fed is
widely expected to stick to its super-easy policy until
unemployment falls sharply.
And while that is likely to push the dollar lower against
most currencies, it is likely to hold its gains against the yen.
The dollar hit a fresh 2-1/2 high against the yen at 91.38
yen, bolstered by widening spreads between U.S. Treasuries and
Japanese government bond yields. Traders reported an option
barrier at 91.50 yen which could cap gains in the near term.
Selling the yen has been mostly a one-way bet since
mid-November, based on expectations that Japanese Prime Minister
Shinzo Abe would push the Bank of Japan into more aggressive
monetary easing to beat deflation.
"We have a forecast of 95 yen for this quarter but even that
could be exceeded given the pace of the current moves," Morgan
Stanley's Stannard said.
BOJ Governor Masaaki Shirakawa, whose term ends in April, is
expected to be replaced with a governor who shares Abe's views
on monetary policy and who could then bring forward any easing
and drag the yen even lower.