EUR rises as economic outlook brightens

USD

Risk appetite was buoyed by comments from Chicago Federal Reserve President Charles Evans who said the US should wait maintain accommodative monetary policy to sustain the economy. Evans, who is a voting member on the FOMC, also said that the world's largest economy is expected to grow 2.5 percent in 2013 and 3.5 percent in 2014.

These comments hurt the US dollar, as forex investors were eyeing hints for an earlier than anticipated exit from QE3, following the last FOMC meeting minutes in which policymakers spoke of an exit by end of 2013. Forex investors turned their focus on a speech by Fed President Bernanke scheduled for Monday, for more hints on how long the Fed's quantitative easing program will last.

Global equity markets are on the rise as signs of a sustained pickup in growth in the United States and China, together with easier monetary policies from the major central banks is bolstering demand for riskier assets. US markets closed the week higher last week, and the S&P 500 closed at a five-year high on Thursday.

EUR

Asian and European shares rallied at the start of the week, and the euro and other riskier currencies were also pushed higher as the economic growth outlook of the common currency bloc improved. European leaders declared over the weekend, that they've gained the upper hand in their fight against the three-year old sovereign debt crisis. The mood was clearly less bleak at the start of this year, and monetary and fiscal conditions are less tight, even in countries like Spain and Italy.

The rally in riskier assets and higher-yielding currencies took flight on Thursday of last week however, after the European Central Bank dampened the prospects of an interest rate cut in the near-term.  ECB President Mario Draghi said the euro area economy will slowly recover this year as bond markets in the region calm following three years of turmoil. The comments came at the ECB news conference which follows the Governing Council meeting, in which policymakers left the benchmark interest rates unchanged at 0.75 percent.

EUR/USD pushed higher, up to an eleven-month high by 1.3404 at the start of the week and EUR/JPY hit 120.12, breaching 120 for the first time in more than 20 months.

JPY

The Japanese yen extended its decline at the start of the week, sliding to its lowest since June 2010 against the dollar, and May 2011 versus the European single currency. The Nipponese currency came under renewed pressure after Prime Minister Abe reiterated his call for more aggressive monetary stimulus by the Bank of Japan.

On Sunday, Abe said the BOJ must set a two percent medium-term inflation target and pursue bolder policy in order to end almost two decades of deflation. He also said he will meet with monetary policy experts this week to seek advice on who would be right to fit the role as the next BOJ governor.

USD/JPY rose to 89.67, more than a two and a half year high, but some forex traders said the pair accelerated as it breached an options barrier by 89.50 and broke above July 2010 high of 89.15 rather than Abe's latest comments.

GBP

GBP/USD rose more than 200 points last Thursday, to 1.6168 from 1.6004 after the Bank of England decided to leave its key interest rate at 0.50 percent and also its asset purchases target at £375 billion. The pair however pared its gains and fell to 1.6039 at the start of the week, at the time of writing, as a series of downbeat data from the United Kingdom put pressure on the pound.

On Friday, cable extended its rise to 1.6178, but industrial and manufacturing data both came out much lower than expected, weighing on the currency as it trimmed its gains across the board. EUR/GBP rallied to 0.8320 on Monday, it's highest since April 2012.

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