NEW YORK—The euro bounced off a one-year low to emerge modestly stronger against the dollar after cash-strapped Greece formally requested a lifeline.
The dollar, meanwhile, shot to a more than two-week high against the yen as a marked rise in new home sales demonstrated the continuing strength of the U.S. economic recovery.
The euro should enjoy a modest relief rally, strategists said, as the Greek aid request releases some pressure from a situation that had gone in recent days from a slow simmer to a boil, but as larger, structural issues—such as low-growth prospects and profligate spending—again come into focus, the common currency will falter.
Furthermore, "just because they've asked for [aid] doesn't mean they're going to get it," said Geoffrey Yu, currency strategist at UBS in London.
The details of an International Monetary Fund-European Union aid package to Greece still have to be worked out, and possible objections from Germany or other expected contributors to a bailout could derail the plan, which would weigh on the euro, he said.
Greece's finance minister said he expected funds to be available within a few days.
At midmorning in New York, the euro had moved to $1.3336 from $1.3314 late Thursday. The dollar strengthened to 94.24 yen from 93.60 yen. The euro strengthened to 125.60 yen from 124.62 yen. The U.K. pound weakened to $1.5328 from $1.5386. The dollar was flat at 1.0765 Swiss francs from 1.0767 francs.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, rose to 81.648 from 81.572.
A slow crawl of headlines will knock around the euro in the near term, analysts said. The currency early traded at $1.3201, the weakest since April 2009, as Asian traders fretted over Greece. But better-than-expected economic data from the bloc of nations that use the euro sent to as high as $1.3346.
"Short-term, it is a relief rally," Mr. Yu said of Greece's formal request, "but even if, let's say, Greece manages to tap the funds without many problems, the next step is will the other at-risk nations like Portugal and Spain start asking questions" about bailout plans for their own stressed finances.
The euro could rally to around $1.3350, according to TD Securities analysts in Toronto, before longer-term issues conspire to drag the common currency lower.
Greece Prime Minister George Papandreou formally requested aid under the joint E.U.-IMF bailout mechanism following months of turmoil in Greek financial markets. The statement came three days after Greece formally began talks with European and IMF officials over the technical details of a joint loan package announced by European leaders late last month.
The package would provide ˆ45 billion in combined funding in the first year from other euro-zone member countries and the IMF, and possibly double that over three years.
Separately, the high-flying Australian dollar weakened sharply after Reserve Bank of Australia Governor Glenn Stevens said interest rates are now close to the average of the past 10 to 12 years. The Australian dollar shed more than 0.6% of its value against its U.S. peer.
Meanwhile, the dollar gained against the yen after much better-than-expected U.S. new home sales data. Sales of single-family homes surged 26.9% in March; economists had expected sales to rise only 5.5%.
The dollar had already risen strongly against the Japanese currency, according to Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J., on a CNBC report that cited unnamed sources saying a growing bloc of members of the Federal Reserve's interest rate-setting panel favors a near-term sale of assets as the Fed seeks to shrink its balance sheet.
Asset sales would be seen as tightening the ultraloose monetary policy the Fed instituted in the wake of the financial crisis. Tightening policy would boost the dollar.