Currency at 2-month highs on rate view, Greek deal helps euro

The dollar hit a two-month high against a basket of currencies on Wednesday on expectations the Federal Reserve will raise rates in the near term, but it gave up gains against the euro on relief that there was progress in Greek bailout talks.

Euro zone finance ministers early on Wednesday gave a nod to releasing 10.3 billion euros in new funds for Greece in recognition of painful fiscal reforms pushed through by Prime Minister Alexis Tsipras's leftist-led coalition

The dollar index was flat at 95.536, after rising as high as 95.661 earlier in the Asian session, its highest since late March. The index has risen nearly 3 percent this month, with the latest move coming after data showed new U.S. single-family home sales surged to a more than eight-year peak in April and prices hit a record high.

The euro was up 0.15 percent higher at $1.1152, recovering from a 10-week low of $1.1133 struck on Tuesday. The single currency was also higher against the yen and the British pound as southern European government bonds rallied on the Greek news.

"The Greek debt problem was not the biggest concern, but there is relief it is out of the way and euro is drawing some support from that," said Niels Christensen, FX strategist at Nordea. "The biggest focus in the currency market remains the Fed and rate hike expectations."

While some profit-taking emerged after the dollar's recent gains, many investors took a breather before data and events in coming days, traders said.

"Most people are just squaring positions ahead of the month-end," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "The dollar's downside should be limited for now," he added.

The upbeat housing numbers backed the Fed's April policy meeting minutes, released last week, which hinted it may raise rates soon if the economy appeared strong enough.

The dollar could take its cues over the next few days from data including initial jobless claims and pending home sales on Thursday and U.S. first quarter GDP figures on Friday.

Fed Chair Janet Yellen is also due to speak on Friday, which is also the concluding day for the G7 summit being held in Japan. Once the G7 summit is out of the way, markets will be focusing on whether Tokyo may be looking to postpone a scheduled sales tax hike and implement fiscal stimulus measures.

Sterling slipped 0.2 percent to $1.4608 after fresh polls showed a neck to neck battle between those want to stay in the European Union and those wanting to opt out. Of late, sterling has rallied after some polls gave the "Remain" camp a sizeable lead.