Euro trades at strongest level vs dollar in 2 months

The euro traded at its strongest level against the dollar in more than two months on growing optimism the currency region will overcome its debt crisis as economic recovery takes hold and German inflation accelerates.

The dollar approached a three-week low against the yen after U.S. President Barack Obama proposed a partial spending freeze, making it more difficult for the Federal Reserve to raise interest rates.

The pound climbed from a two-week low versus the dollar after the Bank of England said two policy makers voted for a rate increase. The Swiss franc fell versus the euro for the first day in three as stocks rose. Norway's krone gained for a third day before a monetary-policy decision, BusinessWeek reports.

"Most of this euro rally seems to be driven by speculators with no major structural inflows coming into the euro zone," said Manuel Oliveri, currency strategist at UBS in Zurich.

"While this is the case we think the current picture for the euro is not sustainable unless growth outside of Germany starts to improve."

Recent bullish data has bolstered expectations Germany's strong run will continue, while peripheral nations like Ireland, Greece and Portugal are being held back as they struggle with a sovereign debt crisis, Reuters reports.