The euro rebounded sharply against the dollar on Thursday on growing hopes for support for the ailing economies of Central and Eastern Europe and profit taking.
The euro was trading at 1.2673 dollars around 2200 GMT, up from 1.2535 dollars late Wednesday.
The European single currency also gained against the Japanese yen, climbing to 119.35 yen from 117.45 yen. The dollar advanced against the yen to 94.18 yen from 93.72 yen.
After several sessions of dollar buying, traders sold them off to take profits, dealers said.
The euro rebounded after sinking to a three-month low on Wednesday against the US currency, at 1.2513 dollars, amid fears over European bank exposure in Central and Eastern Europe.
"The euro surged higher on Thursday to test former support at 1.2725 amidst news that the eurozone's largest economy, Germany, would step up to the plate and help another member nation if they fell into a dire financial situation," said Terri Belkas at Forex Capital Markets.
Belkas noted that 10 international banks, including Commerzbank and Unicredit, had pledged two billion dollars and seven Ukrainian-controlled banks pledged one billion dollars in order to recapitalize their subsidiaries in Ukraine as eastern European banks face ratings downgrades and financing difficulties.
"Overall, these are signs that various governments and financial institutions are willing to coordinate their efforts for the greater good, but ultimately, indications of distress in the financial sector will still have very negative repercussions for risk appetite," she said.
The Hungarian forint, the Czech koruna, the Polish zloty and the Romanian leu all gained ground on Thursday after days of high volatility.
Audrey Childe-Freeman, an analyst at US bank Brown Brothers Harriman, said the dollar fell against most currencies, "helped by hopes of a possible German-led effort to provide support for the weaker members of the eurozone as well as the Eastern European countries".
The market also continued to digest US President Barack Obama's 275-billion dollar strategy to help millions of homeowners avoid foreclosure and stabilize the reeling real-estate sector.
"Since it will likely take time to make an impact, similar to the stimulus plan and the revised bank bailout plan, we expect risk aversion will remain and keep the dollar supported," said UBS analyst Geoff Kendrick in London.
The dollar can be boosted in uncertain economic times since investors tend to see it as a safe haven.
Investors remained unconvinced by the 787-billion-dollar economic stimulus bill signed into law earlier this week by Obama, analysts noted.
And the dollar was also pulled lower after the Federal Reserve forecast on Wednesday that the recession-hit US economy would shrink in 2009.
In Asia, the Japanese central bank announced plans to buy up billions of dollars in corporate bonds from commercial banks as part of efforts to fight the credit crunch.
In late New York trading, the dollar slipped to 1.1735 Swiss francs from 1.1774 late Wednesday. The pound rose to 1.4293 dollars from 1.4213.
The euro was trading at 1.2673 dollars around 2200 GMT, up from 1.2535 dollars late Wednesday.
The European single currency also gained against the Japanese yen, climbing to 119.35 yen from 117.45 yen. The dollar advanced against the yen to 94.18 yen from 93.72 yen.
After several sessions of dollar buying, traders sold them off to take profits, dealers said.
The euro rebounded after sinking to a three-month low on Wednesday against the US currency, at 1.2513 dollars, amid fears over European bank exposure in Central and Eastern Europe.
"The euro surged higher on Thursday to test former support at 1.2725 amidst news that the eurozone's largest economy, Germany, would step up to the plate and help another member nation if they fell into a dire financial situation," said Terri Belkas at Forex Capital Markets.
Belkas noted that 10 international banks, including Commerzbank and Unicredit, had pledged two billion dollars and seven Ukrainian-controlled banks pledged one billion dollars in order to recapitalize their subsidiaries in Ukraine as eastern European banks face ratings downgrades and financing difficulties.
"Overall, these are signs that various governments and financial institutions are willing to coordinate their efforts for the greater good, but ultimately, indications of distress in the financial sector will still have very negative repercussions for risk appetite," she said.
The Hungarian forint, the Czech koruna, the Polish zloty and the Romanian leu all gained ground on Thursday after days of high volatility.
Audrey Childe-Freeman, an analyst at US bank Brown Brothers Harriman, said the dollar fell against most currencies, "helped by hopes of a possible German-led effort to provide support for the weaker members of the eurozone as well as the Eastern European countries".
The market also continued to digest US President Barack Obama's 275-billion dollar strategy to help millions of homeowners avoid foreclosure and stabilize the reeling real-estate sector.
"Since it will likely take time to make an impact, similar to the stimulus plan and the revised bank bailout plan, we expect risk aversion will remain and keep the dollar supported," said UBS analyst Geoff Kendrick in London.
The dollar can be boosted in uncertain economic times since investors tend to see it as a safe haven.
Investors remained unconvinced by the 787-billion-dollar economic stimulus bill signed into law earlier this week by Obama, analysts noted.
And the dollar was also pulled lower after the Federal Reserve forecast on Wednesday that the recession-hit US economy would shrink in 2009.
In Asia, the Japanese central bank announced plans to buy up billions of dollars in corporate bonds from commercial banks as part of efforts to fight the credit crunch.
In late New York trading, the dollar slipped to 1.1735 Swiss francs from 1.1774 late Wednesday. The pound rose to 1.4293 dollars from 1.4213.
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