Euro edges higher as mood remains subdued Risk currencies rose slightly on Tuesday from the previous day's lows, but the mood remained subdued as the rally in the euro following news of a bailout for Spanish banks faded. The euro was up 0.4 per cent against the dollar at $1.2520 but remained well below Monday's high of $1.2647. Currency analysts said that with traders holding record short positions on the euro, the single currency was likely to bounce on any positive news on the eurozone in the days ahead. "We believe that the high-beta rebound may extend in the coming days, given the stretched levels of bearish sentiment and the potential for positive headlines from Europe," said analysts at Morgan Stanley. However they added: "That said, we will look to sell into these euphoric risk rallies should policy response from Europe prove temporary in nature." The dollar and yen sold off modestly against other major currencies as markets remained cautious on the impact of the Spanish bailout. The yen also sold off following a report from the International Monetary Fund that said the Japanese currency was overvalued and suggested the Bank of Japan should act to weaken the yen. The dollar rose 0.2 per cent to Y79.53 while the euro rose 0.6 per cent to Y99.55. Sterling rose 0.5 per cent to Y123.52. The pound also rose against the dollar, gaining 0.3 per cent to $1.5520 despite figures showing industrial and manufacturing production were weaker than expected in April. Citigroup reported that traders had been short on sterling positions going into the release of the figures. The Australian dollar rose 0.6 per cent against the US dollar but remained below parity at $0.9918 after touching more than $1 the previous day. Data from the US Commodity Futures Trading Committee showed that speculators held record shorts on the Australian dollar following a further interest rate cut by the Reserve Bank of Australia last week.