The euro retreated from a 2-1/2-month high against the dollar on Wednesday as signs of dissension over a euro zone rescue plan and unrest in Egypt caused some investors to take profits on its recent rise. The currency climbed as high as $1.3861 overnight, its best level since early November, but fell after a German government official said Berlin opposed allowing a euro zone rescue fund to buy troubled countries' debt. Traders said winter storms in the Midwest and Northeast were keeping trading ranks thin on Wednesday, while clashes in Egypt between supporters and opponents of President Hosni Mubarak injected some uncertainty into markets. A downgrade of Irish government debt also prompted some euro selling, but analysts noted the currency remains in an uptrend and may yet test $1.40 in the weeks ahead. "There's a bit of a flare-up in Egypt and some of our barometers suggest a hint of renewed risk aversion, but I don't think it will dissuade investment in high-yield assets," said BNY Mellon strategist Michael Woolfolk. "And given how far the euro has come, you would expect to see some profit-taking." Dollar gains against major currencies, meanwhile, were slight, even as data showed U.S. private employers beat expectations with 187,000 new jobs last month. Traders said a downward revision to last month's data tempered enthusiasm and failed to alter investors' conviction that U.S. interest rates will remain low indefinitely. The euro has come off a bit but is still looking firm, and as long as the market expects the Federal Reserve to keep rates low and continue bond purchases, people will sell the dollar," said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. The euro last traded at about [EUR=X Loading... () ] $1.3788, down on the day while the dollar was up near [JPY=X Loading... () ] 81.45 yen. The dollar was flat at about [CHF=X Loading... () ] 0.9353 Swiss francs. The next key resistance for the euro was the 76.4 percent retracement of the euro's November to January fall around $1.3950, which coincides with the 200-week moving average. While U.S. data has improved—a survey this week showed manufacturing grew in January at its fastest pace since 2004—the Fed remains committed to stimulative monetary policy. An official said another round of bond purchases could even be discussed if economic recovery starts to flag. The euro, meanwhile, has been supported partly by expectations that the European Central Bank will lift interest rates sooner than the Fed does. The ECB meets this week and investors will listen for more clues on this from President Jean-Claude Trichet on Thursday. Still, ING analysts argue the two-year euro swap rate—the rate at which corporates hedge against interest rate risk—has limited room to rise after pushing above 2 percent, 100 basis points over the policy rate, which they say is "extreme." "The euro may have come about as far as it can on the ECB story alone, and will need an alternative catalyst to punch it through resistance in the $1.39-1.40 area," ING analyst Chris Turner said in a note.

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