(Reuters) - The euro rose on Wednesday, hitting a four-month high against the dollar, after Germany's top court gave its approval to the euro zone's new rescue fund, allowing its ratification under certain conditions.
The euro rose as far $1.29065 on trading platform EBS, up from $1.2845 before the verdict. It broke above option barriers at $1.2900, according to traders.
"This result from the German Constitutional Court is the best we could look for," a London based currency trader said.
"The court has allowed the euro zone rescue fund to come into existence. While they limit Germany's liability to 190 billion euros, this matters less now in our view. This is very positive for risk and very positive for the euro."
The euro has risen 7 percent from July's two-year low of $1.2042, helped in recent weeks by the European Central Bank's pledge to do "what it takes" to preserve the euro and by expectations of further monetary easing from the U.S. Federal Reserve, which starts a two-day meeting on Wednesday.
"We think the Fed will announce QE3 this week and that the dollar will continue to fall after the Fed meeting, possibly to around 77 yen within a few weeks," said Junya Tanase, chief FX strategist at JPMorgan in Tokyo.
The yen held near a 3-1/2-month high against the broadly weak dollar, trading at 77.85 per dollar. The dollar index .DXY fell to a four-month low of 79.658.
