The euro hit a two-month high near $1.37 on Monday but lost some momentum in New York trade as worries about Europe's debt crisis and the speed of the euro's recent rally provoked some euro longs to book profits. Political turmoil in Ireland highlighted problems in indebted eurozone countries and a bombing at Russia's biggest airport also capped the currency's rise.
Still, the euro rose for a fifth straight session, trading up 0.2 percent at $1.3644 late in New York. But it was off a two-month high of $1.3683, and some analysts said it could retreat several cents per dollar in the weeks ahead. "The euro has come so far, so quickly, and all in the absence of a real solution to the eurozone's debt problem. That makes me think it's reached an extreme valuation for now," said Brendan McGrath, senior analyst at Wester Union Business Solutions in Victoria, British Columbia.
In other trading, the dollar fell 0.1 percent to 82.48 yen and the euro added 0.1 percent to 112.51. The dollar was also down 1 percent at 0.9484 Swiss francs. The euro has rallied some 6 percent in the past two weeks, aided by increasing international support for the eurozone's debt rescue plan and concerns that higher inflation will prompt a rate rise this year. European Central Bank President Jean-Claude Trichet warned over the weekend about price pressures in the 17-country zone.
The spread between eurozone and US bond yields has widened as a result. The euro's broad rally also cleared out short positions, or bets that the shared currency would depreciate. The latest CFTC data show IMM euro positions held by speculators shifted to 4,109 net long contracts last week, versus 45,182 net shorts the previous week. But some analysts warn that weakness in some eurozone countries, including Ireland, Greece and Portugal, may hold the ECB back from raising rates in the near term.
Irish Prime Minister Brian Cowan resigned as head of the Fianna Fail party at the weekend, sparking political turmoil as the country tries to pass a budget bill to access a bailout from the EU and IMF. The euro retained a key technical level around $1.3570, a 50 percent retracement of its decline from November to early January. Technical analysts say it must hold above that level on a sustained basis to extend its gains.