The euro rallied on Wednesday as sovereign debt worries abated temporarily after a German court backed the country's role in eurozone bailouts, though gains may be limited ahead of a European Central Bank meeting. Risk appetite improved as a result of the German court's decision, pushing the dollar lower as investors sought other currencies that offer higher returns such as the Australian dollar and Swedish crown.
In addition, a call by Chicago Federal Reserve President Charles Evans, a voting member of the central bank's Federal Open Market Committee, for further US easing to stimulate jobs was also a negative for the greenback. Investors though looked to Thursday's ECB meeting and were back to scrutinising ECB President Jean-Claude Trichet's messages which can sometimes be unclear. Analysts expect the ECB to flag a pause in tightening due to slowing global growth, easing inflation, and nagging eurozone debt concerns. Some even suggested that the ECB could sound outright dovish.
In late afternoon trading, the euro was up 0.7 percent on the day at $1.40990 on electronic trading platform EBS, off a session high of $1.41504 hit immediately after the German Constitutional Court's ruling. The euro though was still down 2.0 percent this month.
The euro held gains against the Swiss franc, which fell for a second straight day after the Swiss National Bank on Tuesday said it would set a floor of 1.20 francs to the euro by buying foreign currencies in unlimited quantities. The euro was last up 0.3 percent at 1.21000 francs on EBS. The dollar, meanwhile, was down 0.4 percent at 0.85820 franc on EBS.
The ICE dollar index was down 0.7 percent at 75.448. As investors fled the safety of the franc following the SNB's move on Tuesday, it was the Swedish crown's turn to shine. Investors had snapped up the Norwegian crown on Tuesday - a currency with robust economic fundamentals - as they frantically searched for an alternative safe haven. The Swedish crown rose to a three-month high against the euro after Sweden's central bank said further monetary tightening would be postponed but did not signal any intent to cut rates, as some investors had expected it would.
Commodity currencies also rose, with the Australian dollar up 1.5 percent at US $1.0651, buoyed by a report showing the Australian economy grew at its fastest pace in four years last quarter. The dollar, meanwhile, was down 0.4 percent against the yen at 77.284 yen on EBS.