LONDON: The euro fell on Tuesday, succumbing to profit taking after a rallying to four-month highs against the dollar and yen a day earlier, with a renewed rise in peripheral bond yields likely to weigh on sentiment.
The yen ceded ground against the dollar on speculation the Bank of Japan might loosen policy after the US Federal Reserve launched a fresh round of monetary stimulus last week.
The euro stood at $1.3080, down 0.3 percent on the day, having hit $1.3173 hit on Monday, its highest since May 4.
Traders said option barriers at $1.3200 appeared safe for now, with bids from sovereign investors cited at $1.3080/90 and stop-loss orders below $1.3070.
The euro has rallied about 9 percent from a two-year low of $1.2042 in July when investors were worried the currency bloc might be heading for a break-up as Spanish and Italian borrowing costs soared.
Two-year Spanish bond yields rose on Tuesday, up 4.8 basis points on the day at 3.45 percent.
Optimism the European Central Bank's new bond buying scheme will help Madrid weather the debt crisis has helped lift the euro, though Spain's apparent reluctance to seek a bailout has worried investors, contributing to higher bond yields.
"Unless we get this uncertainty out of the way, we expect the euro to face some resistance around its highs," said Adam Myers, senior currency strategist at Credit Agricole.
Investors' immediate focus was a German analyst and investor sentiment survey. The ZEW economic sentiment survey is forecast to show a slight improvement though current conditions are expected to ease in September, compared with August.
A positive surprise could see the euro bounce, but those gains are likely to be limited, traders said.
The euro fell 0.3 percent to trade at 102.90 yen, having rallied to a four-month high of 103.858 yen on Monday.
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