Euro strengthens following Italian bond auction

The euro jumped against the dollar Wednesday after a successful Italian debt auction reassured markets.

The euro was priced at $1.3136 around 2200 GMT, up from $1.3061 late Tuesday.

After dropping sharply the last two days amid uncertainty over the Italian election, the euro gained support following "a better than expected Italian bond auction," said Christopher Vecchio, currency analyst at DailyFX.

Vecchio noted that the Italian treasury successfully had sold 6.5 billion euros of treasury bonds.

However, Vecchio cautioned that the 10-year bonds were sold at an average yield of 4.83 percent compared with 4.17 percent at the previous auction on January 30.

In spite of the euro's gains, the uncertainty surrounding the makeup of the Italian government will continue to weigh on the single currency, said Kathy Lien, managing director at BK Asset Management.

"Prolonged political uncertainty makes Italy a major source of risk for the euro this year," Lien said, adding that the euro will have a hard time rising much from current levels.

The dollar's decline came as US Federal Reserve Chairman Ben Bernanke wound up two days of twice-yearly testimony to Congress, reaffirming that the Fed would continue its ultra-loose monetary policy to support the tepid US recovery.

The dollar could be poised for a rally Thursday if, as expected, the government's second estimate of economic output in the 2012 fourth quarter ends up as a large upward revision, Lien said.

The dollar rose against the Japanese currency, trading at 92.16 yen, up from 91.93 yen late Tuesday.

The British pound gained on the dollar, trading at $1.5153 compared with $1.5126 Tuesday.

The dollar also retreated against the Swiss franc, buying 0.9297 franc as opposed to 0.9315 franc late Tuesday.