The euro rose against the dollar on Tuesday on hopes policymakers may reach a deal to provide further aid for Greece at a summit later this week, though a lack of a long-term solution for the country's debt crisis could keep the single currency vulnerable.
A fall in debt yields on Italian and Spanish bonds a day after they jumped above 6 percent on fears of a potential Greek default helped bring some relief to the euro and helped it consolidate around support near $1.4150.
Eurozone leaders are trying to complete an agreement on a second round of aid for Greece worth 110 billion euros ($154 billion), but it remained unclear how a consensus could be reached to involve private owners of Greek government bonds.
German Chancellor Angela Merkel doused expectations for Thursday's emergency eurozone summit. She said the widespread longing for a single, final solution to make the Greek crisis disappear once and for all was unrealistic.
The euro rose as high as $1.42172 on trading platform EBS, before retreating to $1.4138, up 0.2 percent on the day.
The euro also rallied versus the safe-haven Swiss franc to hit 1.16881; it was last up 1 percent at 1.1658.
The dollar cut losses against the euro and rose against the yen after President Barack Obama on Tuesday supported a bipartisan proposal for a new deficit-reduction plan aimed at averting a US debt default.
Obama said the ambitious budget plan brought forward by the "Gang of Six" group of senators could provide new ideas for breaking the impasse in Congress over raising the federal government's credit limit by August 2.
Against the yen, the dollar rose 0.2 percent to 79.21, rebounding from a session low of 78.820 on EBS.
The dollar has recently been stung by worries about US debt as investors fret that Washington will hit a stalemate over raising the government's $14.3 trillion borrowing limit.
Higher-yielding currencies rallied as gains in stocks lifted risk appetite. The Australian dollar was up 1.1 percent. The New Zealand dollar rose to a post-float high against its US counterpart of $0.8573. The New Zealand dollar was floated in March 1985.