Euro climbs to session peak in New York

The euro recovered to trade at a session peak against the dollar on Tuesday as investors looked past a plan by Ireland to hold a referendum on Europe's new fiscal treaty. The euro was last up 0.5 percent at $1.3461 after climbing as high as $1.3467.
The euro remained close to a three-month high against the US dollar on Tuesday ahead of an injection of cheap cash from the European Central Bank that looked set to increase risk appetite and fuel short-term gains in the single currency. It also advanced against the yen, although it stayed well below a four-month peak touched on Monday. The yen pulled away from a nine-month low against the dollar reached the day before on month-end buying by Japanese exporters, but short-covering by hedge funds saw it relinquish some of those gains.
Currency investors shrugged off news that Standard & Poor's had cut its ratings on Greece to "selective default" as moves by Athens to lighten its debt burden had been expected to trigger such a downgrade. The euro also showed little reaction to the ECB's temporary suspension of Greek bonds as collateral for its funding operations, and a solid Italian debt auction.
Still, many were cautious about pushing up the euro too much further with focus on the ECB's Longer Term Refinancing Operation, LTRO, an offer of cheap money to companies which have been starved of investment funds. "One would think that (the LTRO) would be decisive for the market's mood for the next couple of days," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank.
But he cautioned that the market reaction is not going to be overly simple. Day earlier, the euro rose 0.3 percent to $1.3435, trading not far from a near three-month peak of $1.3486 set on Friday. Traders cited decent offers at $1.3480 and a reported option barrier at $1.3500 which would check gains. Immediate support was seen in the $1.3357-66 area around recent lows.
A Reuters poll showed banks will take up half a trillion euros of ECB funds, roughly the same as last time. This would be seen as buying more time for authorities to resolve the sovereign debt crisis. "The impact on sovereign debt spreads would be favourable with a bigger than expected figure so I would expect to see the euro spike a bit higher," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi in London.
The euro briefly pared gains against the dollar on Tuesday after a report showed new orders for US manufactured goods fell in January by the most in three years, suggesting the economy started the year on weaker footing than expected. A report showing US single-family home prices dropped in December, sending a seasonally-adjusted index to its lowest level since 2003 also blunted the euro's advance.
Until the US data, US economic activity was showing signs of a more sustained recovery, pushing yields higher and driving the dollar up against the Japanese yen, although momentum in that move was flagging. Also weighing on the yen and putting it on course for its sharpest monthly drop in two years was a record trade deficit, shrinking current account surplus and surprise policy easing by the Bank of Japan.
Still, the dollar's fortunes changed at least temporarily on Tuesday, last being down 0.1 percent at 80.45 yen, having hit a nine-month high the day before. It briefly fell as low as 79.99 yen, but managed to bounce back on dollar-buying by Japanese investors unwinding their currency hedges.
"Any retracement that we see in the dollar will be a good opportunity to position for more yen weakness," said Stuart Frost, head of Absolute Returns and Currency at fund managers RWC Capital Partners in London. "We are positioning for the dollar to rise to 85 yen in the next three months." The euro climbed to 108.11 yen, 0.2 pct higher compared to late New York levels, but well off the four-month peak touched on Monday.