The euro held firm near a two-month peak on Tuesday, showing only the barest signs of fatigue after a rally in the past two weeks, as climbing eurozone interest rates prompted speculators to bet on further gains in the currency. The Australian dollar fell broadly after lower-than-expected consumer inflation data reinforced market expectations that Australia's central bank will be in no hurry to lift interest rates, though it cut much of its losses in late Asian trade.
The single currency last traded at $1.3650, having risen as high as $1.3685, just one pip off a two-month peak marked in New York on Monday. The move brings into play the next major resistance level, at $1.3742, a 61.8 percent retracement of the Nov-January fall, and then the euro's November 22 high of $1.3786.
Underpinning the single currency were growing expectations that the European Central Bank will lift interest rates ahead of the US Federal Reserve, after recent tough talk on keeping inflation in check by ECB chief Jean Claude Trichet. That helped to push the yield spread between two-year German and US bonds to its highest level in two years last Friday, at 0.67 percentage point. On Tuesday it remained near that peak, standing at 0.65 percentage point.
The common currency has been persistently supported by robust demand from Asian central banks, which spurred buying from real-money accounts and prompted the speculative market to reverse bearish positions in an abrupt turnaround last week. The euro climbed 0.2 percent against the Aussie to A$1.3700, edging back towards a two-month high around $1.38 hit on Monday. The euro fetched 112.50 yen, flat on the day and near a two-month high of 112.91 yen marked on Monday and handily above its 200-day moving average, currently at around 112.20.
Rising risk appetite helped to limit the fall in the Aussie dollar against the dollar. The Aussie shed 0.1 percent to $0.9950 but managed to stay above support at around $0.9920. Selling in Aussie/yen also pushed dollar/yen 0.1 percent lower to 82.50 yen. The yen did not move after the Bank of Japan kept its policy unchanged following its meeting that ended on Tuesday, as expected.
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