The euro rose to a 2-month high against the dollar on Wednesday as technical factors added to the European currency's earlier gains that had been fueled by grim British jobs data.
Traders were cautious ahead of the Federal Reserve's announcement on U.S. rates and an accompanying statement later on Wednesday from its policy meeting.
The euro hit a 7-week high against the pound earlier after British data showed jobless benefit claims rose by the largest amount on record last month. The European currency also was helped by a recent rally in global stock markets, which had undermined the greenback's safe-haven appeal.
"It's ultimately a continuation of the improvement in risk assets and stocks and this is seeing the the dollar weaken as the safe-haven demand falls off," said Brian Dolan, chief currency strategist at Forex.com, in Bedminster, New Jersey.
"There's also a fair amount of technical indications behind this. The move over $1.31 has brought in some fresh momentum buyers," he added.
In mid-morning trading in New York, the euro was last 0.9 percent higher at $1.3129 after hitting a session high of $1.3156, according to Reuters data. The common currency last traded at these levels since January.
The euro was last up 1.4 percent at 93.91 pence.
In the United States, a government report showing consumer prices rose slightly more than expected in February had limited impact on the dollar as the focus remained on the Fed, analysts said.
FED, BOJ MEETINGS
The Federal Open Market Committee is expected to leave interest rates on hold at zero to 0.25 percent, with focus centered on whether it will announce any additional measures to expand its credit easing policies.
In particular, investors will be looking for any hints on whether it is moving toward -- or away from -- buying long-term U.S. government debt, though most analysts believe they will concentrate on the existing measures they have in place.
"The Fed is not going to push the notion of buying US Treasuries despite some expectations in the markets for that. If they were to do such a thing, they would have done so already," said Dustin Reid, director of FX strategy at RBS Greenwich Capital Markets, in Chicago.
Other analysts said an earlier Reuters report that a United Nations panel will recommend the world ditch the dollar as its reserve currency in favor of a basket of currencies also weighed on the greenback.
"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid 2008," Ashraf Laidi, chief market strategist at CMC Markets in London, said in a note. "The topic is already re-emerging."
The yen steadied as The Bank of Japan said overnight it was holding interest rates at 0.10 percent and increasing its outright buying of Japanese government bonds to 1.8 trillion yen ($18.28 billion) per month from 1.
