Euro off lows in London

The euro pulled away from a seven-week low against the US dollar on Tuesday, but remained vulnerable on the downside as investors looked at opportunities to trim bullish bets while uncertainty over Greek debt lingers. The yen was under broad pressure on talk of merger and acquisition flows, while sterling jumped against the US dollar and the euro after UK inflation leapt in April to its highest annual rate since October 2008.
The euro drew some support from a solid response to a Spanish bond auction and a mixed German economic sentiment survey. But concerns about the eurozone periphery were keeping the euro volatile, with a comment from the Eurogroup president on the possibility of a "soft" debt restructuring for Greece briefly knocking the shared currency down around 40 pips.
"Interest rate expectations are keeping the euro supported but every time Greece is mentioned it seems to fall. There are many risks to the downside," said Chris Walker, currency strategist at UBS. Other eurozone finance ministers have hinted they may ask Greece's private creditors to extend the maturities on their bonds. It was the first time ministers have said they would consider such a move which would buy Athens more time to pay down its debt.
The euro was last up 0.3 percent on the day at $1.4202, recovering from a seven-week low of around $1.4048 hit on Monday on trading platform EBS. Some traders said as long as it stayed below its 55-day moving average of $1.4280, it was vulnerable to a test of its recent lows.
Valentin Marinov, a currency strategist at Citi, said investors' view of the euro in coming days will be tested as the opposition to the re-profiling of Greek debt could have broader support, including that from the European Central Bank. "All that could point at fairly prolonged and complex negotiations," he said. "These negotiations could fuel market uncertainty about the outlook for parts of the eurozone banking sector and thus the outlook for ECB policy."
The euro hit a 17-month peak near $1.4940 in early May, when it was buoyed by market expectations that the ECB would raise interest rates further in the coming months, while the Federal Reserve is expected to keep interest rates near zero this year. The euro has since slid about 5 percent from that high, as a rout in commodities such as silver and oil spooked investors and prompted them to trim back dollar-funded bets on risky assets. Positioning data from the US Commodity Futures Trading Commission showed currency speculators trimmed their net long position in the euro in the week to May 10 but still held relatively large bets on the currency.
Traders said talk of merger and acquisitions flows brought the Japanese currency under pressure and supported currencies like the euro against the yen. The euro rose 1.5 percent to 116.13 yen, while the Swiss franc was up 0.7 percent at 92.08 yen. Traders said news that Toshiba Corp was close to buying Swiss-based Landis and media reports that Takeda was in advanced talks to purchase Swiss-based rival Nycomed were the catalyst for yen selling.
The dollar was up 1 percent against the yen at 81.71 yen, with traders citing demand from funds and stops above 82 yen. The Australian dollar was up 0.4 percent at $1.0600, helped by hawkish minutes from the last meeting of the Reserve Bank of Australia.