Rising yields help euro hit 10-week high vs. struggling dollar

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The euro hit a ten-week peak on Thursday, tracking European bond yields higher and benefiting from a sell-off in the dollar after weak U.S. jobs data added to speculation that the Federal Reserve will delay raising interest rates.

As Britons took to the ballot box to cast their votes in the most uncertain UK parliamentary elections in decades, the euro also hit a three-month high against sterling. Though the pound inched down against the dollar, it remained in the range in which it has traded for the past two weeks.

The greenback has skidded almost five percent in the last month on a run of softer-than-expected data that has driven investors to push back bets on when the Fed would start hiking rates, with some now not expecting rises until next year.

Figures on Wednesday showed U.S. private sector employers in April hired the fewest workers in over a year, raising a red flag for closely-watched non-farm payrolls numbers due on Friday.

That data, as well as a warning from Fed Chair Janet Yellen about the potential dangers of high equity valuations, helped drive the euro to its highest against the greenback since late February, trading up 0.3 percent at $1.13825 on Thursday.

"The dollar lost momentum after the ADP employment report yesterday, so some of the euro move reflects that," said Phyllis Papadavid, senior FX strategist at BNP Paribas in London. "The next 48 hours are going to be quite important, both in terms of the election and the payroll number tomorrow."

Traders said the euro's resilience was also due to a surge in German Bund yields, which have jumped nearly 50 basis points in just over a week, outstripping a 34 basis point-rise in their U.S. peers.

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Against the British pound, the single currency powered to 74.71 pence, its highest since Feb. 6. The ruling Conservatives and opposition Labour Party have been neck-and-neck in opinion polls that indicate neither will win an outright majority in the 650-seat parliament.

"In terms of short-term sterling response, we see a hung parliament as the worst outcome given that the full degree of uncertainty would remain in place, with markets likely reacting with a knee jerk sterling sell off," wrote Petr Krpata, FX strategist at Dutch bank ING in London.

Reflecting a high degree of uncertainty on the shape of the next government, option traders are expecting a volatile trading in sterling. The pound's overnight implied volatility has shot up to above 30 percent from around 12 percent on Wednesday.

The Norwegian crown rose around one percent against the dollar after Norway's central bank left interest rates unchanged, trading at 7.3545 crowns, its strongest this year.