London - The euro advanced against the dollar on Tuesday as fresh efforts to tackle the eurozone's debt crisis helped to offset a drop in German investor confidence.
The European single currency rose to $1.4168 in London deals from $1.4153 late in New York on Monday.
Against the Japanese currency, the dollar firmed to 81.61 yen from 80.76 yen on Monday.
Europe offered Greece a second chance to get its finances in order on Monday, as its 27 finance ministers shifted position on how to deal with a deepening debt crisis in Athens.
They refused to rule out new loans, or a second bailout, and expressed a willingness to offer more time to meet €110bn ($156bn) in existing commitments - but demanding €50bn of sell-offs first.
That came after they gave their expected approval of a €78bn bailout for Portugal, and picked Italy's Mario Draghi to replace France's Jean-Claude Trichet as head of the European Central Bank in October.
On Tuesday meanwhile, Greece raised €1.625bn, or $2.3bn, at slightly easier rate, in an auction of three-month treasury bills as its eurozone peers inched closer to offering it more help.
Elsewhere, mixed signals on the US and Chinese economies might have undermined German investor confidence this month, the closely watched ZEW index showed.
The index fell to 3.1 points in May from 7.6 points in April, the third monthly drop in a row, a statement from the economic research institute said.
Analysts polled by Dow Jones Newswires had expected a slightly better reading of 3.5 points.
"In view of the strong growth of German GDP (gross domestic product) in the first quarter of this year, the financial market experts consider a further increase of the economic momentum to be unlikely," the ZEW statement said.
"Moreover, mixed signals regarding the state of the US economy as well as a weaker outlook for the Chinese economy might have dampened expectations," it added.
The index is now some way below its historic average of 26.5 points.
In London, sterling rallied against the euro and the dollar as a surge in British inflation increased the likelihood of a near-term hike in interest rates.
British inflation leapt to 4.5% in April, hitting the highest level for two and a half years on rising travel costs during the Easter holiday break, official data showed on Tuesday.
"Today's higher than expected jump... increases the pressure on the monetary policy committee at the Bank of England to act sooner rather than later with respect to a rise in interest rates," said Michael Hewson, an analyst at traders CMC Markets.
Despite high inflation, the Bank of England has refrained from hiking its key lending rate from a record low 0.50 percent because of Britain's weak recovery from recession. Rates have remained on hold for more than two years.
In London on Tuesday, the euro changed hands at $1.4168 against $1.4153 late in New York on Monday, at 115.45 yen (114.34), 0.8686 (0.8740) and 1.2562 Swiss francs (1.2515).
The dollar stood at 81.61 yen (80.76) and 0.8877 Swiss francs (0.8843).
The pound was at $1.6299 (1.6186).
On the London Bullion Market, gold prices dropped to $1 494.23 an ounce from $1 501 late on Monday.