The euro climbed to a two-month high above $1.37 on Tuesday and looked poised to extend gains as momentum turned increasingly bullish after the currency's recent break above key chart levels. A pledge by the US Federal Reserve, which concludes a two-day policy meeting on Wednesday, to continue its $600 billion bond-buying plan could further help the euro versus the dollar, analysts said. A statement will be released at around 2:15 pm (1915 GMT) on Wednesday.
The euro's rise in late New York trade on Tuesday extended a six-day rally against the dollar. Traders said the euro's solid break above the $1.35 area last week was significant and suggested a run toward $1.3786, the November 22 high. In late trading, the euro rose 0.4 percent to $1.3695, after having earlier risen as high $1.3705 on trading platform EBS.
The eurozone's single currency has gained about 6.5 percent since hitting a low around $1.2860 on January 10. Near-term resistance lies around $1.3738, the 61.8 percent retracement of fall that began in early November and ended two weeks ago. A break above that would add to bullish momentum.
Traders said early euro volatility was partly due to the European Financial Stability Facility's (EFSF) inaugural debt issue. The order book for the issue closed with bids valued at 43 billion euros for the 5 billion euros of paper on offer, a source at the EFSF said. Speculation the new issue would be massively oversubscribed boosted the euro in early trade, but gains were eroded when investors who built up euros to buy EFSF debt sold them back.
Gains were also limited after Guido Westerwelle, head of German Chancellor Angela Merkel's junior coalition partners, said that he was still not convinced the eurozone bailout fund should be expanded. The dollar weakened broadly, falling just below 82 yen, as US bond yields fell. Lower yields make dollar-denominated assets less attractive.
The dollar last traded down 0.3 percent at 82.22 yen, after falling as low as 81.97 yen on EBS. Sterling dived after a surprise 0.5 percent contraction in fourth-quarter UK gross domestic product, compared with economists' forecasts of a 0.5 percent gain. The pound fell to a session low of around $1.5750. It last traded down 1 percent at $1.5830. Against the pound, the euro jumped almost 1.5 percent to its highest in two-and-a-half months.
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