The euro hit a one-month high against the Swiss franc and edged up versus the dollar today as speculation that measures to tame the euro zone debt crisis may be on their way prompted short covering.
The euro nudged up to the day's high versus the dollar after Spain attracted strong demand at an auction of five-year bonds. Investors had been eyeing the sale to see if debt problems plaguing Greece, Ireland and Portugal will spread to Madrid and beyond.
The single currency added to gains made on Wednesday, when solid demand at a Portuguese auction quelled some concerns about the country's snowballing financing costs, prompting a buy back of euros after it hit a four-month low early this week.
Meanwhile, traders said jitters before an upcoming emergency meeting of Swiss unions and industry and trade representatives triggered selling in the Swiss franc against the euro, pushing the euro to 1.2837 francs, its highest since mid-December.
Analysts said the euro was supported after German Finance Minister Wolfgang Schaeuble said yesterday that euro zone countries are working on a "comprehensive package" to solve the review's debt crisis, which could be agreed by February or March.
"We're wary of positioning for euro downside too aggressively because there seems to be more news that Germany and France are going to push through some emergency resolution package," said Geoffrey Yu, currency strategist at UBS.
"So the euro could rally going into this."
The euro rose 0.2 per cent on the day at $1.3170, recovering from an early slide to $1.3089.
The single currency was supported by its 200-day moving average of $1.3070 after it rose as high as $1.3145 yesterday. The euro has recovered from a fall to around $1.2860 on Monday, its weakest since mid-September.
It also poked above $1.3152, the 50 per cent retracement of the recent fall from around $1.3435 to $1.2870.
Despite the euro's rise this week, market participants say the euro remains vulnerable to selling if euro zone debt problems deteriorate further.
"At best the euro could rise to around $1.33. But fundamentally, the euro still has headline risks. Even if investors' risk appetite grows, they have many other currencies to buy," said Minoru Shioiri, forex manager at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"The euro's downtrend will end only when there is a more negative story on the dollar," he said.
The European Central Bank announces its monthly policy decision later in the day, and president Jean-Claude Trichet will speak to reporters at 1330 GMT. While no policy changes are expected, focus will be on the central bank's bond-buying programme and its reaction to higher inflation.
Spain's offer of five-year bonds was met with strong demand even as the paper came with an average yield of 4.542 per cent, higher than 3.576 per cent at a previous sale. Expectations had been for a yield of around 5 per cent.
However, the Spanish results are seen doing little to change the view that Portugal will continue to struggle and will ultimately follow Greece and Ireland in seeking aid from the EU and IMF.
Support for the euro kept the dollar weak. The dollar index, which tracks the greenback's performance against a basket of major currencies, was little changed on the day at 79.98 after having lost about 1 percent this week.
The dollar moved sideways against the yen at 82.98 yen, holding within the previous session's trading range.
The Aussie was unchanged at $0.9966 after a surprisingly small rise in employment data, though strong commodity prices and the currency's high interest rates limited its losses.
Reuters