The euro rallied against the dollar on Wednesday, snapping a six-day decline, after a German court rejected lawsuits to block the country's participation in euro zone bailouts.
The decision from the top court in Europe's largest economy eased some fears the euro zone's debt crisis will worsen and increased risk tolerance.
However, the single currency remained vulnerable ahead of the European Central Bank's rate decision on Thursday.
Slowing global growth, easing inflation and mounting euro zone debt concerns are likely to see the ECB flag a pause in its rate tightening cycle at its governing council meeting, with an outside chance it could sound dovish.
Higher euro zone rates raise the attractiveness of the bloc's securities and stoke demand for the currency to buy them.
The German court decision is an excuse to book some profits from the last few days but it's not really a game changer, said Omer Esiner, chief markets analyst at Commonwealth Foreign Exchange in Washington.
The euro was last up 0.4 percent on the day at $1.4059 on electronic trading platform EBS, off a session high of $1.41504 hit immediately after the German Constitutional Court's ruling. The euro is still down 2.2 percent for the month to date.
Although the court's decision was seen as positive for the single currency, the court also said parliament must have a bigger say before aid is granted, potentially making a solution to the euro zone debt crisis more cumbersome.
It could hamper (German) participation going forward, said Esiner. It's a double-edge sword.
Finance Minister Wolfgang Schaeuble said that the court left it free to the government to agree to aid agreements in the euro zone with other countries and inform parliament afterwards.
Data showing German industrial output rose more than expected in July and a rise in equities supported the euro. But analysts said it could struggle ahead of the ECB decision and sink back under its 200-day moving average around $1.40195 at current prices.
Traders said it had support above $1.40 after failing to make a sustained break below there on Tuesday. They said investors were still inclined to sell on rallies. That left the currency vulnerable to a drop toward the July 12 low at $1.38376.
The euro retained hefty gains made against the Swiss franc on Tuesday after the Swiss National Bank said it would enforce a limit of 1.20 francs to the euro by buying foreign currencies in unlimited quantities. It was last up 0.2 percent at 1.20945 francs on EBS.
The dollar was down 0.2 percent at 0.8605 francs on EBS.
SWEDISH CROWN, AUSSIE RISE
The Swedish crown rose to a three-month high after Sweden's central bank said further monetary tightening would be postponed but did not signal any intent to cut rates, as some investors had expected it would. Analysts said the market increasingly sees the Swedish currency -- along with Norway's crown -- as a safe alternative to the euro after the SNB curbed appetite for the franc.
There is a tremendous amount of desperation around. Everybody is asking where the new safe haven is, said Sebastien Galy, currency strategist at Societe Generale.
The Swedish crown is very attractive for a euro-based investor because the ECB is starting to look like it may cut rates. Only a few days ago the crown was trading below its short-term fair value based on rate differentials. Now people are rushing into it.
Commodity currencies also rose, with the Australian dollar up 1.1 percent at $1.0613, according to Reuters data, buoyed by a report showing the Australian economy grew at its fastest pace in four years last quarter.
The dollar was down 0.3 percent against the yen at 77.45 yen on EBS.
Traders said the yen was supported by the Bank of Japan's decision to keep policy unchanged. Some market players had expected Japan to take measures to stem the yen's strength after Tuesday's move by the SNB.
(Additional reporting by Jessica Mortimer and Nia Williams in London)
(Reporting by Nick Olivari; Editing by Andrew Hay)