The US dollar edged higher against the yen after a much-stronger-than-expected U.S. consumer confidence index for January. The Conference Board said its index of consumer attitudes jumped to 60.6 in January, the highest since May 2010. Additionally, data showed U.S. single-family home prices fell less than expected in November.
Despite some early morning profit taking on the euro resulting from the positive data out of the U.S., the euro continued its march higher against the USD and GBP.
The euro continues to soar to new heights, reaching fresh 2 ½ month highs against the USD and GBP, as the pound extended broad losses on data showing a shock contraction in fourth quarter UK gross domestic product.
Adding additional support to the euro, German Deputy Finance Minister Joerg Asmussen said there is no crisis in the euro currency, and that Berlin would do whatever it takes to support the stability of the euro zone.
Expectations the European Central Bank would lift interest rates before the U.S. Federal Reserve have underpinned the single currency this month due to tough talk on inflation and interest rates by ECB chief Jean-Claude Trichet.
The British pound took a hit as data showed GDP unexpectedly fell by 0.5%, causing markets to scale back expectations for higher UK interest rates and sending the pound sharply lower against all major currencies.
A weaker-than-expected reading of UK retail sales which suggests sluggish consumer demand, highlighted the fragility of the economic recovery.
Some economists said the surprisingly poor reading suggested the Bank of England would be much more cautious about the threat of lasting inflation, which would weigh down the UK currency. Others argued the impact of persistent price pressures on a weak economy would heighten the risk of stagflation, which would also be negative for sterling.
The Japanese yen continues to trade within recent ranges against the USD, garnering strength as the dollar is pummeled by the euro.
The Canadian dollar slumped to a session low against its U.S. counterpart on Tuesday after domestic inflation data came in softer than expected, reducing the chance of a near term rate hike.
The Australian dollar weakened in the face of lower-than-expected consumer inflation data, which reinforced market expectations the central bank will likely not hike interest rates until well into the year.
Many analysts believe this is only a temporary setback for the currency, with price pressure set to climb and the Reserve Bank of Australia (RBA) still on track to tighten policy later this year, and still far ahead of most other developed nations.
The New Zealand dollar escaped most of the drama faced by the Aussie, to remain firm against the USD. The main event this week is the Reserve Bank of New Zealand's interest rate review on Thursday, although the chances of an interest rate rise are seen at virtually zero given the sluggish nature of the domestic economy.
Indications of Overnight rates:
10-Year Treasury Note Yield: 3.375%
Dow Jones Industrial Average: 11, 921.75 -58.77%
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.