The euro rose against the major currencies on Tuesday, supported by expectations of higher euro-zone interest rates and an increase in investor appetite for riskier assets. As a result, the euro rose as high as $1.3842, its highest since early November. The EUR experienced similar behavior against the GBP and closed at 0.8570.
Traders are increasingly convinced that rising inflation in the 17-nation currency bloc will soon force the hand of the European Central Bank as it seeks to curb price pressures. While no one expects the ECB to raise interest rates when it meets on Thursday, building inflationary pressures have led to speculation the central bank may need to raise borrowing costs sometime this year.
Currency levels are being increasingly determined by interest rate differentials. As a result, investors have been willing to purchase euros based on expected higher returns, even as they momentarily ignore Europe's still-festering sovereign debt problems.
Easing fears Egypt's political unrest would spread in the Middle East also helped boost the euro and higher-yielding currencies such as the Australian and New Zealand dollars.