The euro struggled to hold gains against the dollar on Tuesday, as expectations for a eurozone interest rate rise were offset by a Federal Reserve warning about keeping US monetary policy loose for too long. The euro rose to around $1.4150 before retreating as traders took profits on its gains after Fed President James Bullard said the US central bank may normalise monetary policy before global uncertainties are resolved.
The euro was a touch lower on the day at $1.4060. It pushed through bids seen around $1.4080, but hovered above a low of $1.4021 hit on Monday. The $1.40 level is supported by a trendline drawn from the low below $1.30 hit in January, while the euro's 21-day moving average stands just above that level, at around $1.4006.
On the upside, heavy options-related barriers around $1.4250 were expected to cap gains. A break of that level may see a test of the November high of $1.4283. Many in the market argued the euro would likely stick to the $1.40-$1.4250 range ahead of US payrolls data due on Friday, while low implied volatility levels suggested a break-out on either side was unlikely in the near term. One-month euro/dollar implied vol traded around 9.9 percent on Tuesday, near its lowest level in roughly a year.
The euro also rose 0.5 percent against the yen to around 115.64 yen, its highest level since Group of Seven central banks intervened jointly at Japan's request to curb the yen's appreciation following a devastating earthquake. It was on course to test 116.03, above which would mark a 10-month high.
The dollar rose 0.5 percent to 82.10 yen, with traders citing demand from UK and European banks. Gains were capped by offers, including those from Japanese exporters, around 82.00 yen. Further up, orders were seen around 82.50 and 83.00. The dollar index, which tracks the US currency's performance against a basket of major currencies, edged up 0.2 percent to 76.298.