LONDON, Jan 16: The euro pushed higher against a broadly weaker dollar on Thursday, homing in on a new three-and-a-half-year high, as worries over the anaemic pace of US economic recovery and geopolitical tensions sapped demand for the US unit.

The single European currency climbed to 1.0571 dollars from 1.0550 late on Wednesday in New York, leaving the unit just shy of Tuesday’s peak of 1.0604, which itself represented the euro’s highest level since October 1999.

The dollar fell to 117.95 yen from 118.11 on Wednesday.

Most people are still pretty negative on the dollar, worrying about the funding of the huge (US) current account deficit, said ABN Amro currency strategist Rob Hayward.

On top of which you’ve got European investors holding a huge amount of US assets which they’re looking to hedge because they’re fearful of them underperforming,” Hayward told AFP.

But Hayward said sales of the euro around the 1.0600 level, by traders looking to protect positions in the currency options market, were helping stem the single currency’s rise.

It may be that we breach 1.0600 in which case we could see it (the euro) pushing up to 1.0650 but people are pretty long so we’d expect to see profit taking capping the upside, Hayward said.

Commerzbank analyst Nick Parsons likewise noted that the despite the latest rally the euro had failed to break into new territory.

He said in a note to clients that in the absence of fresh developments on Iraq, US stocks would most likely be the main driver of the euro/dollar rate ahead of Friday’s key US trade data.

The analyst believes the dollar is vulnerable to the trade statistics which he said will remind investors just how much international capital the United States needs to attract to finance its “consumption addiction”.

President (George W.) Bush may be desperately trying to stimulate consumer spending still further, but this is not the answer to the United States’ structural problems.

An excess of credit and consumption will not be solved by lower interest rates and tax cuts. The market is now realising this, Parsons said.

The euro was changing hands at $1.0571 from 1.0550 late on Wednesday in New York, 124.64 yen (124.64), 0.6585 pounds (0.6573) and 1.4629 Swiss francs (1.4610).

The dollar was being quoted at 117.95 yen (118.11), and 1.3841 Swiss francs (1.3845).

The pound was at 1.6046 dollars (1.6044), 189.20 yen (189.54) and 2.2216 Swiss francs (2.2222).

On the London Bullion Market, the price of an ounce of gold stood at 351.25, up from 350.90 late on Wednesday. —AFP