The euro rose for a third day against the dollar on Tuesday, buoyed by hopes European policymakers are planning to boost a bailout fund, though gains could be fleeting given investor uncertainty. EU officials have said they are studying ways to increase the firepower of the European Financial Stability Facility, a 440 billion euro fund used to bail out Portugal and Ireland, without increasing the guarantees member states make.
But talk of co-ordinated action to contain the eurozone debt crisis was accompanied by denials from policymakers that bailout cash would be increased, frustrating some investors. In mid-afternoon New York trading, the euro rose 0.7 percent against the dollar to $1.36230, well above an eight-month low of $1.33600 hit on Monday. At the session peak of $1.3669 on Tuesday, it was the highest since September 21.
The euro's move higher coincided with comments from Germany's Chancellor Angela Merkel saying Germany wants a strong Greece. The euro also climbed to its highest against the yen since September 21 with a peak of 104.963 yen. It last traded at 104.421, up 1.1 percent on the day.
However, officials once again appeared to contradict optimists on chances of a eurozone rescue deal. German Finance Minister Wolfgang Schaeuble said on Tuesday that raising the eurozone bailout fund is a "silly idea," and would mean some of the economies within the region could lose their AAA rating. Spain's economy minister Elena Salgado also downplayed the rescue fund speculation, saying plans to extend the region's EFSF bailout fund to two trillion euros were not on the table.
The euro remains vulnerable to declines and some investors are ready to sell into any rally given the euro has just moved from oversold territory as measured by the 14-day exponential relative strength index. Higher-risk growth-linked currencies also rebounded after a recent sharp sell-off. The Aussie dollar was up 1.2 percent against the US dollar at US $0.9948. The Kiwi dollar gained 1.5 percent to US $0.7914.
The US dollar traded 0.5 percent higher at 76.711 yen but was still less than a yen from the record low of 75.941 yen set last month, keeping intervention from the Bank of Japan to stem the Japanese currency's gains high on radar screens. The yen has strengthened 5.5 percent so far this year.