The euro rose against the dollar on Wednesday after a German government bond auction attracted solid demand easing some concerns about fiscal instability in the European Union.
The dollar came under fresh selling pressure against the yen, easing toward recent 15-year lows on growing speculation that Japanese authorities are unlikely to intervene to counter their currency's recent strong run.
The euro recovered from the day's low after a 5 billion euro sale of German 10-year debt produced a record-low average yield of 2.37 percent. An auction of Portuguese T-bills also went smoothly.
Analysts said that in the absence of major events or economic data in the euro zone, investors had taken the successful auctions as a cue to renew buying of the single currency.
Sterling rose after the Bank of England minutes were less dovish than expected.
European auctions today and yesterday have raised optimism around the euro, said William Reekstin, a director with Direct Access Partners, in New York,
In early New York trade, the euro was up 0.1 percent against the dollar at 1.2900 EUR=, pulling away from the day's low and again testing the 1.2900 level.
1.2900 has constituted a level which the euro/dollar has not been able to sustain a rally past over the last five sessions, with this trend having been tested once again today, said Sacha Tihanyi, a currency strategist at Scotia Capital in Toronto.
The euro was supported at around $1.2845, the 50 percent retracement of the single currency's fall from its March 17 high to its four-year low struck on June 7.
The euro had recovered from this week's low of $1.2732 on robust responses to Irish and Spanish debt auctions, although investors remain cautious about going long on the single currency due to worries about peripheral euro zone economies.
Sovereign debt jitters refuse to die down, said Neil Mellor, currency strategist at Bank of New York Mellon. Spreads for Greek, Italian and Portuguese debt remain elevated, despite the good responses to Irish and Spanish debt auctions this week. So we should see that impacting the euro.
The 10-year Greek/German government bond yield spread GR10YT=TWEB DE10YT=TWEB remained high.
The pound GBP= traded 0.6 percent higher at $1.5682. It hit the day's high after minutes from the BoE's policy meeting earlier this month showed an 8-1 vote to hold interest rates at a record low 0.5 percent.
One policymaker voted in favour of a rate rise. Sterling recovered from a three-week low hit earlier in the day on talk the BoE minutes could reveal a three-way split decision, which would have meant one member voting for an increase in the central bank's quantitative easing program . Traders reported option-related offers at $1.5660/90, which were seen capping the pound's gains.
The dollar shed 0.3 percent against the yen to 85.21 yen JPY=, not far from a 15-year low of 84.72 yen hit on trading platform EBS last week. Traders cited stops at 85.20 yen which could check the dollar's fall.
Dollar/yen is headed toward the 85 yen level and there is little that can be done to prevent that, said Kenneth Broux, markets strategist at Lloyds TSB Financial Markets.
Japanese authorities are seem as unlikely to conduct yen-selling intervention unless the currency's rise accelerates sharply, market players say.
Speculation about intervention has mounted ahead of a meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa expected next Monday. (Reporting by Nick Olivari; Editing by Theodore d'Afflisio)