Fresh expectations of a Spain bailout followed by a Moody's decision not to downgrade Madrid's credit rating to junk grade Tuesday sent the euro climbing to its best level in a month.
Late in trade Moody's credited Spain's commitment to reforms and ECB support for its debt in deciding to hold the rating at Baa3, while appending a "negative outlook", a warning that a cut could still take place if things get worse.
The rating sent the euro jumping nearly a half cent on the dollar, adding to early strength to hit $1.3096 at around 2200 GMT, compared to $1.2950 late Monday.
The yen meanwhile continued its slow fall. The dollar inched higher to 78.89 yen from 78.66 Monday, while the euro hit 103.31 yen, from 101.89.
Spain's situation drove the trade Tuesday, said Matthew Weller of GFT.
"Though obviously being forced to request a bailout indicates a gross mismanagement of a country's finances, the euro is widely expected to rally further if this report proves true, as a Spanish bailout is seen as inevitable and a formal announcement would remove one of the market's major uncertainties."
Weller meanwhile warned that the dollar's failure to top 79 yen despite a handful of positive US data announcements was possibly a signal that the yen was being seen as too low.
"If a stellar report can't push the dollar-yen rate higher, what would happen if some neutral, or even negative, data hits the wires?"
In other trade, the dollar fell to 0.9234 Swiss francs from 0.9328. The British pound pushed higher to $1.6116 from $1.6072. (AFP)
