The euro advanced to a six-week peak against the dollar on Monday, as investors grew confident European leaders will come up with a broad agreement to deal with the eurozone's debt crisis at a second summit scheduled for Wednesday. European leaders neared a deal over the weekend on bank re-capitalisation, and eurozone officials said France and Germany were close to agreement on how to use the European Financial Stability Facility to stave off contagion in the bond market.
As the New York session began, the euro surrendered gains but reversed losses, expressing renewed optimism concrete steps to resolve the crisis will be announced on Wednesday despite serious divisions on the size of the haircut private holders of Greek bonds will have to endure.
The US dollar was shunned overall as risk appetite improved given a less pessimistic view on Europe and record third-quarter revenues at Caterpillar Inc that have underpinned US stocks. The dollar index was down 0.3 percent at 76.151. "Investors are pricing in the fact that the worst will be avoided with the conclusion of Wednesday's EU summit," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. In late afternoon trading, the euro was last up 0.2 percent at $1.39211, after trading as high as $1.39570, its highest since September 8.
Traders said there is an options barrier at $1.40 that could come off even before Wednesday's meeting. The figure also corresponds to the euro's 200-week moving average. Another key figure to watch is $1.4040, the 50 percent retracement of the May to October decline. However, any delay in releasing a convincing plan from Wednesday's summit, or even a delay in a statement from leaders of the eurozone economies, could cause the euro to fall, analysts said.
Some analysts remained skeptical that any substantive deal could come out of the meeting. JR Crooks, chief of research at investment advisory firm Black Swan Capital in Palm City, Florida said he can't imagine how the market could be so confident about Wednesday's summit.
"Summit after summit has been a total failure, when measured by actual progress and not simply temporary market price action and kick-the-can worthiness," said Crooks. "(Sunday's) summit was a non-event. My bet is Wednesday will be equally dull, if not supremely disappointing should these officials really fess up as to how tough their job has become."
The dollar, meanwhile, fell against the yen, trading close to the record low touched on Friday and leaving traders on alert for possible renewed intervention to stem strength in the Japanese currency. It was last at 76.071, down 0.3 percent. The dollar hit an all-time low of 75.78 yen last Friday on electronic trading platform EBS. Japanese Finance Minister Jun Azumi said on Monday Japan would take decisive action on excessive and speculative forex moves. He said the greenback below 76 yen did not reflect economic fundamentals. The growth-linked Australian dollar was up 1.0 percent at US $1.0466, aided by economic data of top trade partner China.