The dollar was low against a basket of currencies while a burst of short-covering lifted the euro through key resistance levels in what could be a taste of things to come. Many of the traders felt that investors were shifting funds away from the US dollar and toward the euro due to combination of factors like easing concerns about sovereign debt problems in the euro zone, worries about a US recovery and strong US earnings results.
On the other hand, the yen is likely to maintain a firm trend with a flat US yield curve likely to encourag e Japanese investors to repatriate profits.
David Watt, senior currency strategist at RBC Capital wrote in a morning note said: "The overall performance gives some confirmation that a descending trendline in the euro since December 2009 has been broken, though the medium-term sustainability of this break remains an open question. At present however, there are more serious concerns about unfolding events in the U.S. economy. Rate spreads are also weighing on dollar, with EU-U.S. two-year swap spread vaulting 50 basis points for the first time since early February, when the euro was at $1.37."
The European currency rose to $1.2920. The dollar was under pressure against the yen, trading at 87.45 yen.