LONDON: The euro rose against the dollar on Thursday after comments from US policymakers revived expectations of a deal being reached to avert sharp fiscal tightening in the world's largest economy.
US House Speaker John Boehner, the top Republican in Congress, voiced optimism that Republicans could broker a deal with the White House to avoid the "fiscal cliff" of tax hikes and spending cuts due to kick in early next year.
President Barack Obama said on Wednesday he hoped to reach an agreement with Congress before Christmas.
The euro rose 0.2 percent to $1.2972, with near-term support seen at $1.2918, the 55-day moving average. It neared a one-month high of $1.3010, hit on Tuesday after Greece's lenders arrived at an agreement to support the indebted country
"Some comfort is being drawn from positive news on the US fiscal cliff and is supporting the euro this morning," said Ian Stannard, head of European FX strategy at Morgan Stanley.
A drop in the 10-year Italian government bond yield to its lowest level in nearly two years was another supportive factor for the euro, as it suggested that investor jitters over the euro zone's debt crisis were diminishing.
Some analysts warned the euro was still vulnerable to economic data and concerns about elements of Greece's aid deal, with Athen's ability to fully implement a debt buy-back a looming issue.
Euro zone economic sentiment data is due at 1000 GMT and weak data could see the euro slip. A Reuters poll expects a reading of 84.2, down slightly from 84.5 last month.
"The one thing that is going to take the steam out of the euro's rebound is if we see the sentiment indicators later this morning come in softer than expected," said Morgan Stanley's Stannard.
Against the yen, the euro was up 0.3 percent at 106.57 yen , not too far from a seven-month high of 107.135 yen hit on Monday.