The dollar slid to a two-month low against a basket of currencies on Wednesday, as continued short-covering in the euro helped spur a broad fall in the dollar. Talk of Asian central banks buying the euro and the Australian dollar weighed on the US dollar, which was also pressured by selling by Japanese exporters, traders said.
The euro remained supported after having risen on Tuesday, when it attracted demand from Middle East accounts and gained a lift from an upbeat German ZEW investor sentiment report. The euro rose 0.7 percent to $1.3485, climbing to its highest level in a month.
A near-term focus is whether the euro will manage to clearly break resistance at around $1.3500. That area is important since it marks the euro's mid-December peak, and also because the top of the weekly ichimoku chart, a technical indicator of support and resistance levels, lies at $1.3510.
In addition, there is talk of option barriers near $1.3500, meaning euro-selling by options players may emerge if the euro approaches that level. If $1.3500 is breached, the euro's next upside target lies at $1.3571, the 50 percent retracement of the euro's November to January slide.
The euro rose even though higher-yielding eurozone bonds fell on Tuesday after the Dutch finance minister said the Eurogroup had rejected enlarging a rescue fund for the region's more indebted states. The dollar index, which measures the dollar's value against a basket of currencies, slid to as low as 78.498, its lowest in about two months. It was last down 0.6 percent at 78.509.
Dollar selling by Japanese exporters helped drag the dollar down 0.4 percent to 82.21 yen. Sterling rose 0.4 percent to $1.6029, supported after data the previous day showed a surge in consumer price inflation, fuelling expectations that UK interest rates may need to rise soon. Sterling had hit an 8-week high of $1.6060 on Tuesday. The Australian dollar rose 0.6 percent against the broadly weaker dollar to $1.0044.