Euro at highest level against dollar since June 2021

The euro moved to its best level since 2021, as the dollar struggled on the eve of the next Federal Reserve decision, while the yen was supported by currency intervention nerves.

Against the yen, the dollar fell to JPY153.20 on Tuesday afternoon, from JPY154.08 on Monday.

"Dollar sentiment is poor amid fear of intervention and a new Plaza-like agreement. We suspect such talk is widely exaggerated and the success of verbal intervention means that material intervention is not needed. Technically, the dollar looks stretched, and tomorrow's conclusion of the FOMC meeting has often been a source of volatility," Bannockburn analyst Marc Chandler commented.

The analyst referred to the Plaza agreement, which saw the US, Japan and some European nations depreciate the dollar.

The Federal Reserve announces a rate decision on Wednesday. Its two-day policy meeting kicks off on Tuesday. According to the CME FedWatch Tool, there is a 97% chance that the federal funds rate range stays at 3.50%-3.75%.

Against the dollar, the euro climbed to USD1.1947 on Tuesday from USD1.1853 on Monday. Sterling was at USD1.3737, up from USD1.3659.

Sterling traded as high as USD1.3749, its best level since July. The euro's intraday high on Tuesday was USD1.1952, its loftiest level since June 2021.

In the four-and-a-half years since then, the euro fell below dollar parity.

ING analysts commented: "EUR/USD remains very bid. We do not see any triggers for big FX moves today, but take the view that the dollar could find support at the bottom of its 2025 trading range."

Against the euro, the pound fell to EUR1.1517 from EUR1.1523.

ING continued: "UK politics may well take its toll on sterling again over the coming months. The next big date here is a UK by-election on 26 February. Should Labour lose its seat to Reform, more pressure will be heaped on PM Starmer and speculation will grow about a change of leadership after the local election results in May. Sterling is also vulnerable to any further bond market pressure emanating from Japan or the US. In short, we think sterling is near the top of multi-quarter ranges."

Versus the Canadian dollar, the buck fell to CAD1.3659 on Tuesday from CAD1.3703 on Monday. The Bank of Canada is expected to leave rates unmoved on Wednesday.

Versus the Australian dollar, the buck faded to AUD1.4393 from AUD1.4458.

The Swiss franc rose to USD1.2980 from USD1.2860.

The dollar index faded to 96.59 from 97.20 points.