LONDON: The euro gained on Tuesday while the dollar rose to a one-month high against the safe-haven yen on talk Spain may soon ask for a bailout and as solid US retail sales and company results eased global economic concerns.
A Spanish aid request would prompt the European Central Bank to start buying Spanish bonds to bring down its borrowing costs. Analysts and traders say this would buoy the euro, though uncertainty remains over when Spain will make a move.
The euro rose to $1.3013 on the EBS trading platform, though traders said it may struggle to make a sustained break above $1.30 given reported demand to sell it around that level. It also hit a one-week high of 102.675 yen.
"There is a feeling of stalemate in the sense that the market is waiting for Spain to ask for a bailout ... There is a good chance that the euro could stay rangebound for a while," said Jane Foley, senior currency strategist at Rabobank.
Although hopes that Spain could ask for financial aid at a European Union summit later this week have dimmed, euro zone officials said it may do so from next month. The request would probably be dealt with alongside a revised loan program for Greece and a bailout for Cyprus.
Throughout this month, the euro has traded between $1.2803 and $1.3072. A break above $1.3072 would target the mid-September high of $1.31729.
Upbeat US economic data and earnings from banking heavyweight Citigroup also boosted risk appetite, lifting equities and perceived riskier currencies, including the euro.
This buoyed the dollar to 78.94 yen, its strongest since Sept. 19, with speculation of more easing from the Bank of Japan also weighing on the Japanese currency.
"There seems to be pressure piling on the Bank of Japan to take action later this month. People are expecting more stimulus from the BOJ," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank in Tokyo, referring to the bank's policy meeting on Oct. 30.
The rise in US retail sales in September followed solid sales in August and pointed to resilient US domestic demand despite worries about a global economic slowdown.
Although many traders expect the dollar's 77-79 yen trading range to persist, a substantial break above its Ichimoku cloud top, which now lies at 78.90, could be seen as one of the strongest bullish signs for the pair in many months.
"Dollar/yen is near sensitive levels. Speculative accounts are trying to test the upside now," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
Japanese mobile operator Softbank's $20 billion purchase of US third-largest wireless company Sprint Nextel, the largest foreign acquisition ever by a Japanese firm, has also encouraged dollar buying against the yen.
But the yen could be resilient due to worries over global growth as it tends to rise at times of economic stress due to Japan's net creditor status. Concern over the US fiscal cliff is increasingly in focus as the US Presidential election is just three weeks away.
Meanwhile, uncertainty over Greece's discussions with its international lenders may also limit gains for the euro and temper risk appetite.
Prime Minister Antonis Samaras said on Monday that Greece will conclude the talks to continue receiving the bailout funds it needs but officials said the talks would most likely not be finished by Thursday's EU summit.
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