The euro reached a seven-week high against the dollar on Thursday as a deal to tackle the euro zone debt crisis pushed investors to unwind bets against the single currency even as investors looked for more details.
The dollar, which has hit a string of record lows this week against the yen, fell to a new low on Thursday as investors continued to test the resolve of Japanese authorities who have intervened twice in 2011 to date to stem the yen's strength.
EU leaders and banks reached a deal on a 50 percent writedown for private bondholders on their Greek debt, and agreed to recapitalize European banks and scale up the euro zone's 440 billion euro ($600 billion) bailout fund.
The euro broke through a wall of orders and surged past stop-loss points as investors reacted positively to developments in Europe.
The euro got a second bid when a report showed U.S. economic growth increased at its fastest in a year in the third quarter as consumers and businesses set aside fears about the recovery and stepped up spending, creating momentum that could carry into the final three months of the year.
The key signal is officials are taking steps in the right direction, triggering this relief rally, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.
The euro gains may continue into next week, Esiner said, until the ECB signals it will start cutting rates.
That would be a catalyst for some of these gains to evaporate, Esiner said.
The euro was last trading around $1.4084, up 1.4 percent on the day.
Investors around the world are cheering the fact that the Europeans have sucked it up and done what was necessary to mitigate a deeper crisis in the region, said Kathy Lien, director of research at GFT in Jersey City, New Jersey. Their sheer relief that the process hasn't been drawn out even further...has provided a nice boost to risk appetite.
Key resistance for the euro was its 200-day moving average at $1.4097 below which it has traded since early September.
While the euro zone's EFSF rescue fund will be leveraged four or five times to about 1 trillion euros, EU finance ministers are not expected to agree until November on the detailed elements of how the scaled-up facility will work.
Against the yen, the euro was 0.6 percent higher at 106.61 yen. High-yielding currencies also rose, with the Australian dollar jumping over 2 percent to a seven-week high of $1.068.
While the summit package is seen averting a euro zone-driven financial market catastrophe in the near term, doubts remain whether it can improve the region's growth prospects.
Recent data out of the euro zone has backed views that the region was flirting with recession. The European Central Bank meets next week and chances are high it will play its role by flagging interest rate cuts in the coming months.
Morgan Stanley said in a note that although more near-term gains in the euro are expected following the deal, it was looking at establishing renewed bearish positions should the euro rebound into the $1.4060 area.
The dollar fell to another record low against the yen after the Bank of Japan, as widely expected, decided to ease policy by expanding asset purchases by 5 trillion yen ($65.8 billion) to 20 trillion yen.
The dollar was down 0.6 percent at 75.68 yen on electronic trading platform EBS after falling as low as 75.661 yen, a fresh record low.
What's driving weakness in dollar/yen is U.S. monetary policy, said Kowshik at BNP Paribas, who expected next week's Federal Reserve meeting to show a reiteration in the FOMC's willingness to keep U.S. rates around zero for an extended period.
Traders also cited talk of an option barrier at 75.50 yen and a bigger one at 75.00 yen with chunky stop-loss dollar offers below the latter level.