The euro rose to a four-year high against the yen in Asia Tuesday after a deal to form a coalition government in Germany and as speculation mounts over further easing by the European Central Bank (ECB).
The European single currency fetched 138.01 yen in Tokyo afternoon trade, hitting its highest level since October 2009, against 137.46 yen in New York Tuesday.
The unit also rose to $1.3590 against $1.3569 in US trade, while the greenback strengthened to 101.54 yen from 101.31 yen in New York where it suffered a selloff on disappointing US consumer confidence data.
Ending two months of uncertainty, German Chancellor Angela Merkel Wednesday agreed to form a coalition government with campaign rivals the Social Democrats, after her conservatives won elections but fell short of a full majority.
Dealers are also looking to eurozone inflation this week for clues about whether the ECB will launch further easing measures.
The bank cut rates to a record-low 0.25 percent this month in response to deflationary fears in the eurozone after October inflation sunk to a four-year-low of 0.7 percent.
"The test of the ECB's reaction function (and the next leg for the euro) will come this week when we get November inflation," Credit Agricole said.
Markets appeared largely unfazed by news that two US B-52 bombers flew over a disputed area of the East China Sea without telling Beijing, in a challenge to China's bid to create an expanded air defence identification zone.
Investors remained focused on US consumer confidence tumbling in November to its lowest level since April.
That result indicated that an agreement in Washington to avert a debt default did not significantly reassure people, while the Federal Reserve will bear the figures in mind when deciding a timeline to wind down its stimulus programme.
However, there was some good news on US housing on Tuesday, while investors will now be keeping an eye on the release this week of jobless claims data and durable goods orders.
The dollar was mixed against other Asia-Pacific currencies.
It rose to 32.04 Thai baht from 31.99 baht the previous day as political protests to overthrow Prime Minister Yingluck Shinawatra's crisis-hit government spread beyond the capital Bangkok.
The dollar was also higher to 1,060.45 South Korean won from 1,059.75 won and to Sg$1.2523 from Sg$1.2510, while it was it was unchanged to Tw$29.60.
The greenback weakened to 11,720 Indonesian rupiah from 11,793 rupiah, to 62.38 Indian rupees from 62.54 rupees and to 43.70 Philippine pesos from 43.79 pesos.
The Australian dollar was down to 91.17 US cents from 91.92 cents, while the Chinese yuan changed hands at 16.64 yen against 16.65 yen.
