The euro edged higher against the dollar today as the arrest of a slide in Chinese shares boosted risk appetite, but its gains were limited by uncertainty over whether officials will agree to beef up a euro zone safety fund this week.
The euro dipped initially but later pared its losses against the dollar as Chinese shares showed signs of stabilising after the previous day's 3 per cent slide, lending some support to risky assets.
The euro's rise against the dollar picked up some steam on stop-loss buying, helping push the single European currency 0.1 per cent higher on the day to $1.3305, up from an intraday low of $1.3254.
But doubts that euro zone policymakers would reach a quick decision on whether to enhance a rescue fund aimed at quelling a sovereign debt crisis, which has forced Greece and Ireland to take bailouts and put nations such as Portugal and Spain under heavy pressure, remained the euro's Achilles' heel.
Euro zone finance ministers met yesterday but made no firm decision about possible additional crisis measures, turning market attention to the Ecofin meeting of European Union finance ministers due to be held later today.
"What indications we have heard from European officials over the past several days is that they just don't feel the same sense of urgency that the market does," said Todd Elmer, currency strategist with Citi in Singapore.
"I think for the time being that means the euro is likely to trade lower," Mr Elmer said, adding that the euro could dip back towards $1.30 in coming weeks.
Europe's safety net fund can borrow on the market with euro zone government guarantees of up to €440 billion, but analysts say a new package of measures to tackle the crisis is both essential and urgent.
The euro also edged higher against the Australian dollar but eased on other crosses, dipping 0.1 per cent against the yen and 0.2 per cent against both sterling and the Swiss franc.
The euro's recent failure to break above its mid-December peak of $1.3500 suggests that the single currency may remain stuck in its range seen over the past month of $1.3500 to $1.2860.
"Although there have been some wild ups and downs, when you think about it, the euro has not really been able to break out of a range roughly between $1.3 to $1.35," said a trader for a major Japanese bank in Singapore.
"I don't think you can make any definitive assumptions," the trader said, referring to the euro's near-term direction.
Immediate support is seen in the $1.3230 area, a level representing the 38.2 per cent retracement of last week's 4 per cent rally.
European Economic and Monetary Affairs Commissioner Olli Rehn held out hope for the effective lending capacity of the European Financial Stability Facility (EFSF) rescue fund to be expanded, saying he was confident of such an outcome.
The dollar dipped 0.1 per cent against the yen to 82.57 yen.
Reuters