The euro edged higher against the dollar and hit a near five-month high versus the yen on Wednesday on signs Greece's bailout was progressing smoothly and as investors again pared back hefty bearish bets on the single currency. Further gains may be capped, however, if a stronger dollar trend driven by higher US Treasury yields reasserts itself. The euro could run out of steam above $1.33, especially if eurozone purchasing managers' surveys on Thursday come in weak.
The shared currency rose 0.3 percent to an almost two-week high of $1.3286 after Greece's lawmakers approved the country's second bailout deal, as expected. It was last up 0.1 percent at $1.3234. Many analysts said the approval had been seen as a formality but signs the Greek bailout was on track, coupled with some short covering as investors who had bet against the euro squared those positions, boosted the single currency.
Technical analysts said the euro rally was likely to run out of steam around $1.33, just above the 61.8 percent retracement of its late February to mid-March fall, and ahead of the March 2 high around $1.3332. Investors remained wary of the risk of another flare up in the eurozone debt crisis. Greece got its first batch of bailout payments this week, but the Italian government looked set to clash with unions over employment law reforms.
A firmer dollar, due to fading expectations of more monetary easing by the US Federal Reserve after a modest brightening of its economic outlook, may also hamper the euro. Ten-year US Treasury yields were last trading around 2.365 percent, within sight of a 4-1/2 month high of 2.399 percent hit on Tuesday. US housing data, due at 1400 GMT, could boost the dollar if it adds to expectations that growth in the world's largest economy is picking up.
During the Asian session Japanese exporters were seen selling the dollar ahead of the end of their financial year on March 31, but market players said there was good demand to buy the greenback on dips. The euro also hit a near five-month peak of 111.43 yen on trading platform EBS, nearing resistance around 111.57, the peak hit on October 31, when Japanese authorities last intervened in the market.
The yen also sagged against sterling, with the pound rising to a session peak around 133.40 yen, its highest level since June 2011. Market focus on Wednesday will also turn to the UK budget presentation by finance minister George Osborne, who faces a tough task supporting a nascent economic recovery at a time when public finances are stretched. Sterling retreated from its highest in more than two weeks against the dollar after dovish minutes from the Bank of England's last monetary policy committee meeting and higher-than-expected UK government borrowing figures.