The euro continues to stay strong against the dollar Friday, with rising U.S. stocks encouraging risk appetite.
The euro is a higher-yielding asset, which attracts investors when market sentiment is positive. The Dow Jones Industrial Average recently was up about 40 points on the day.
The dollar is also down against the yen, as it has recently outshadowed Japan's unit as the major funding currency for riskier bets.
A report that Standard & Poor's Ratings Services raised its opinion on Japan's banking sector and the country's ability to avoid a severe recession is also lending support to the yen
The euro's lead on the lower-yielding yen has waned since its release.
Late Friday morning in New York, the euro was at $1.3929 from $1.3894 late Thursday, while the dollar was at Y96.52 from Y96.62, according to EBS. The euro was at Y134.43 from Y134.22. The pound was at $1.6453 from $1.6341, while the dollar was at CHF1.0841 from CHF1.0868.
However, trading has been volatile and largely rangebound, indicative of the market's uncertainty ahead of next week's Federal Open Market Committee meeting.
Analysts say traders are looking for a new trading catalyst, now that it appears the global recession is ending, but growth is far off. Possible contenders next week besides the FOMC include U.S. housing data; a U.S. Treasury auctioning for $104 billion in two-, five-, and seven-year notes; and a one-year, longer-term refinancing operation by the European Central Bank.
Stronger risk appetite Friday also comes after U.S. Treasury Secretary Timothy Geithner said he sees some signs of stability in the economy and healing in the financial system in an interview with PBS anchorman Jim Lehrer on Thursday.
Encouraging U.S. data Thursday also helped, including a rise in the Conference Board leading indicators index and the Philadelphia Federal Reserve's manufacturing index.
"The problem is that the scope for large equity gains may be harder to find, because it is tough to keep producing positive surprises without some genuine recovery," said Stuart Bennett, a senior foreign exchange strategist at Calyon in London.
Elsewhere, the U.K. pound continues to rebound from lows this week off disappointing U.K. retail sales data. Many analysts say sterling is likely to outperform in the coming weeks, as traders saw its recent decline as an opportunity to buy.
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