The euro fell slightly on Wednesday after yet again failing to break through a key resistance level, helping lift the dollar off a 3-1/2 month low against a basket of currencies. However, further declines for the common currency may be limited a day ahead of a European Central Bank meeting. Given that euro zone inflation is well above the ECB's target, markets expect the central bank may sharpen its anti-inflation rhetoric.
The euro fell 0.1 percent to $1.3761. The euro has retreated after it failed on Tuesday to clear the one-month high of $1.3857 it struck on Monday. Support is seen around $1.3700/10, lows that have supported the common currency in the past few sessions. A break above $1.3860 should open further upside potential towards the $1.42 area, BNP Paribas analysts said.
The euro's dip helped the dollar climb from a 3-1/2 month trough against a basket of major currencies. The dollar index last stood at 77.111, up 0.1 percent on the day. It fell as low as 76.735 on Tuesday, its lowest since early November. The dollar also rose against the New Zealand dollar, which slid 0.7 percent to $0.7412 and tumbled to a 19-year low against the Aussie. The kiwi fell after New Zealand Prime Minister John Key told Bloomberg in an interview that he expected New Zealand's central bank to cut interest rates next week after the devastating earthquake in Christchurch.
Traders said the drop in the New Zealand dollar was exacerbated by stop-loss selling, with the Australian dollar gaining an additional lift against the kiwi after option barriers were taken out at NZ$1.3650. The Australian dollar climbed to as high as NZ$1.3669, the Aussie's highest level against the kiwi since August 1992. After trimming some gains, the Aussie was up 0.5 percent from late US trading on Tuesday at NZ$1.3611.
The dollar rose 0.1 percent against the yen to 81.93 yen, having found support at 81.60 in the past few sessions, after a near three percent slide from around 84.00 in mid-February.
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