Euro holds near three-year highs

LONDON: The euro held above $1.25 on Friday, continuing a strong week in which rising U.S. treasury yields failed to lift the dollar while the euro zone's economic revival and expectations of monetary tightening made the single currency more attractive. Yields on 10-year U.S. Treasuries have risen to near their four-year high as economic growth and buoyant oil prices drive up inflation expectations and central banks start sounding more hawkish.

But the rise in yields, which should push up the dollar, hasn't helped it so far. "You'd think that with rates up, the dollar would be up, but investors are focusing their interest elsewhere," such as further evidence that the European economy is picking up, said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management.

A survey released showed eurozone manufacturing continued to boom last month, bolstering expectations that the European Central Bank is on track to normalise monetary policy. The euro traded flat against the dollar on the day at $1.2505, within sight of last week's three-year high of $1.2538. For the week, the euro has gained around 0.6 percent.

Against a basket of currencies, the dollar was broadly flat as the market awaits non-farm payroll data due later on Friday.

Many strategists say the dollar's sensitivity to domestic news looks weak - ING analysts called it "limited and shortlived" - as investors focus on monetary policy re-pricing opportunities elsewhere.

"Today's US labour market report poses only temporary downside risk to the cross," ING said in a note.

Elsewhere, the dollar added to recent gains against the Japanese yen, helping it move away from a four-month nadir of 108.28 hit a week ago. The dollar rose 0.4 percent on the day to 109.82