SINGAPORE/SYDNEY: The euro edged higher and held above a three-week low against the dollar on Tuesday, but its outlook was clouded by concerns over Spain's fiscal woes and uncertainty over the timing of a possible aid request by Madrid.
The single currency was helped by data the previous day showing US manufacturing grew slightly in September for the first time since May, a reading that weighed on the safe haven dollar and lent support to risky assets.
The euro rose 0.1 percent to $1.2901, inching away from Monday's low near $1.2804 on trading platform EBS, its lowest level in about three weeks.
Spain remained a focal point, with traders waiting for Madrid to seek a bailout and trigger the European Central Bank's bond buying programme, a scheme aimed at lowering the borrowing costs of indebted euro zone countries.
In addition, Moody's has yet to announce its review of Spain's rating, which could see Madrid's credit standing cut to junk status.
The euro's near-term outlook could hinge on whether Spain makes an early request for a bailout, or is forced by the market into seeking such aid, said Sim Moh Siong, FX strategist for Bank of Singapore.
"If Spain requests proactively, I think the euro would have a lot more upside, perhaps to $1.33," he said.
"If they wait for the market to force them to do so, that means a sell-off in the (Spanish) bond market and the yield back up to 7 percent," he said, adding that the euro could face downside risk under that scenario.
European officials said on Monday that while Spain is ready to request a euro zone bailout for its public finances as early as next weekend, Germany has signalled that it should hold off.
Gains in the euro could be limited ahead of a Eurogroup meeting on Oct. 8, given the risk that the gathering may reveal rifts among European officials regarding Spain, said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
"If we see headlines that highlight the type of disagreement that you often see, the euro could fall towards levels such as $1.27 or $1.26," he said.
Against the yen, the euro edged up 0.3 percent to 100.78 yen . The safe haven yen slipped broadly, with the dollar edging up 0.1 percent to 78.12 yen.
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