Forex Review - Euro surges against dollar and yen

The euro extended gains against the dollar and yen in the U.S. trading session, marking three days of gains to end the week higher. The single currency was mostly boosted by general optimism about the euro zone and next week's European Central Bank long-term refinancing operation (LTRO) which would result in more "cheap" money for European banks for the next three years. This flood of liquidity is expected to avert a credit crunch as banks are expected to draw anywhere between 500 more than 500 banks took 489 billion euros in three-year loans. This lifted risk appetite and pushed investors into the euro.

EURUSD hit a high of 1.3484, the highest level since early December, and gaining some 130 pips on the day. The euro rose to a fresh 3-1/2-month high of 109.08 yen , the highest since November 1.

Market sentiment was also boosted by economic data out of the U.S. which was above expectations and also helped to encourage more of a risk-on environment today. The University of Michigan's consumer sentiment survey rose to the highest level in a year and new home sales data showed that sales are on the upswing. The S&P 500 Index closed at its highest levels since June 2008.

The dollar hit a fresh 7-1/2-month high against the yen. USDJPY surged to 81.05 from an early day low of 79.91. Yen is broadly weaker due to the Bank of Japan showing preemptive action to curb the yen's advance. The BOJ said this month it would expand its asset-purchase program to 30 trillion yen ($372 billion) from 20 trillion.

Sterling rose against the euro, recovering early losses, and made hefty gains against the dollar. The pound was lifted after the U.K. economic-growth report showed consumer spending rose more than analysts forecast, boosting speculation the U.K. will avoid a recession. GBPUSD soared to 1.5898 from an earlier day low of 1.5721. EURGBP fell to 0.8464 from 0.8505.

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