The yen steadied, staying in a narrow range against the dollar, with traders wary of pushing the Japanese currency much higher due to concerns about possible additional G7 intervention to prevent further appreciation.

The euro was on track to test its November high of $1.4283 after ECB President Jean-Claude Trichet and other ECB policymakers reiterated their stance that they are ready to act quickly to guard against inflation.

However, traders said a barrier at $1.4250 could stem its gains in the near term.

Gains in the single currency pushed the dollar to its lowest in 15 months against a basket of currencies, the greenback staying under pressure on the view that the US will keep monetary policy loose while other central banks look to tighten.

"Euro/dollar is supported after Trichet continued to signal a rate hike in April and by developments in yields," said Mic Ingenuus, currency strategist at Nordea in Copenhagen.

"A test of the $1.4283 level is extremely likely in the next couple of days, if not today".

German two-year bond yields pushed higher as the ECB showed no signs of backing away from a rate rise next month.

The euro was up 0.1 percent at $1.4237, having hit a high of $1.4246 on EBS trading systems, its strongest since early November, while the dollar index fell as low as 75.302, its weakest since December 2009.

Traders cited real money demand for euros and said there were stops at $1.4250 and $1.4285.

Sterling also hit its highest in more than a year against the dollar ahead of data at 0930 GMT which is expected to show a further rise in UK inflation.

INTERVENTION WATCH

Traders said a massive build-up of offers to sell dollars against the yen may test whether Japanese authorities have a line in the sand at 80 in dollar/yen to launch intervention.

They said selling interest was particularly strong, starting from 82.00 yen -- the dollar's high against the yen after Friday's joint intervention.

The dollar was steady against the yen at 81.05 yen, having earlier dipped on reported selling above 81.00 by Japanese exporters. Traders said stop-loss orders were building below 80.50, but wariness about possible intervention was keeping it trapped in a narrow range for now.

One trader cited dollar offers from investors at 82.00 yen and above, while a customer dealer at a major Japanese bank said the amount of dollar offers around the 82-yen and 83-yen area hase increased sharply in the past few days.

The customer dealer said the amount of such dollar offers at his bank had doubled after a bunch of option triggers were taken out last Thursday, when the dollar slid to a post-World War Two record low of 76.25 yen.

Japanese exporters may gradually lower their dollar offers, given market expectations that authorities are likely aiming to prevent the dollar from dropping below 80.00 yen rather than pushing it higher, the customer dealer added.

Yen volatility has eased significantly since late last week, and some analysts said calmer markets in the coming weeks would decrease the need for Tokyo to smooth any appreciation in the Japanese currency, even if the dollar creeps below 80 yen.

"If we get past the end of the financial year (at end-March) and we're still unclear about the marcoeconomic damage from Japan's earthquake and dollar/yen slides even more, beyond a one-month window it will be difficult for the BoJ to do a whole lot more," said Cliff Tan, Asia FX strategist at Societe Generale in Hong Kong.

The euro edged up 0.15 percent to 115.47 yen.