The euro hit a 16-month high against the dollar on Tuesday, helped by demand from sovereign investors, with expectations that the US Federal Reserve will keep policy accommodative likely to see it extend its gains. The euro also got a boost from investor relief at the sale of close to 2 billion euros of short-term debt by Spain.
That helped it wipe away earlier losses after some used comments by European Central Bank President Jean-Claude Trichet on the need for a strong dollar as an excuse to cut long euro positions. Many traders and analysts said the dollar would remain under pressure from the perception the US central bank is far more reluctant to tighten policy any time soon than an ECB that has already begun to raise interest rates.
Following its two-day meeting, the Fed is expected to say on Wednesday it will stick to its plan to complete a $600 billion bond-buying programme in June, a factor that has been at the heart of the dollar's recent fragility. The euro was up 0.2 percent at $1.4607, having hit a 16-month high of $1.4653. It bounced from a session low of around $1.4494 on steady buying by Middle East investors and Asian central banks, traders said.
The euro has gained 9.5 percent this year and the pull-back earlier in the session was seen as a temporary corrective move. Data from the US Commodity Futures Trading Commission showed speculators' long positions in the currency were still near a three-year high on the Chicago futures exchange. The dollar was down 0.1 percent against a basket of major currencies to 73.913, close to a three-year low of 73.735 hit last week. Against the yen the dollar slipped to a four-week low of 81.56 yen, before recovering to trade at 81.71. Five Japanese life insurers said they may buy more unhedged foreign bonds, believing the yen may weaken.