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Dollar gains vs euro on drop in US jobless claims

The dollar rose to a one-week high against the euro and a three-month high against the yen following a report that initial filings for state unemployment insurance aid fell for the fifth straight week to the lowest level since mid-January.

“The dollar’s continuing its gains on this, and the entire street is watching key support in euro-dollar at 1.3480,” said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston. “If we get through, maybe we’ll trigger some stop losses and go further.”

The euro changed hands down 0.3 percent at $1.3482. Activity was lighter due to a public holiday in some European countries.

Against the yen, the dollar gained 0.4 percent at 121.23 yen.

Not all investors and analysts were convinced the dollar’s rebound was sustainable.

The rally “probably has more legs to it, although one should not be excessively short of dollars,” said David Mozina, head of foreign exchange strategy in New York for Lehman Brothers.

The yen was already pressured by Japanese growth data which pushed back rate hike expectations.

The Bank of Japan, which had the morning to examine the growth figures, ended its two-day policy meeting by leaving interest rates steady at 0.5 percent, as expected.

BOJ Governor Toshihiko Fukui said Japanese rates could be raised even if consumer prices were still falling but repeated that rates would be adjusted gradually.

The yen got brief support after China’s central bank governor Zhou Xiachuan said the bank may consider raising benchmark interest rates again as a way of controlling inflation, but that soon faded. The yen is used as a proxy for the Chinese yuan.

The euro was up 0.1 percent on the day at 163.44 yen, still near a record peak hit on Wednesday of 163.90 yen, according to electronic trading platform EBS.

The Canadian dollar jumped against the US dollar after Canadian inflation rate data came in stronger than expected, improving the chances of a rate hike.

The dollar fell 0.3 percent against the Canadian dollar to C$1.1004.

Investor focus now shifts to the Philadelphia Fed business activity index for May. Economists in a Reuters survey forecast a median reading of 3.0 compared with 0.2 in April.