The greenback slipped versus the Japanese unit on cross-buying in yen as U.S. consumer confidence unexpectedly fell to a record low of 37.7 in January. The single currency reversed early gain made after the release of better-than-expected German Ifo index and fell against the dollar on rumours that the European Central Bank is likely cut interest rates by 50 b.p. in March.
Although the buck surged against the yen in Tokyo trading as Nikkei 225 rallied over 5 percent or 378 points following the Japanese Government's announcement that it would inject public funds (app. $16.7 bln) into troubled corporations, however, the pair ran into heavy offers from Japanese investors and retreated sharply on profit taking. The release of worse-than-expected U.S. consumer confidence, the sentiment index dropped to a record low of 37.7 from a revised 38.6 in December (also well below forecast of 39.0), put extra pressure on the greenback.
The single currency rose to a 6-day high of 1.3330 as the German Ifo business sentiment index rose to 83.0 in January from 82.6 in December, beating economists' forecast of a drop to 81.3. However, euro then declined for rest of the day to as low as 1.3118 due to dovish comments from European Central Bank official, ECB Governing Council member Guy Quaden was quoted that the ECB is probably prepared to cut interest rates again. The International Monetary Fund expects German economy to contract 2.5 percent in 2009, also implied the central bank has room for more interest-rate cuts and there are rumours that the officials are considering to cut another 50 b.p. in March.
Although the British pound fell in tandem with euro in London session to 1.4026, cable then staged a strong rebound to around 1.4200 on cross-buying in sterling as Britain announced it would guarantee up to 2.3 bln pounds of loans to the auto industry. The release of better-than-expected economic data also helped lifting cable, survey from the Confederation of British Industry showed U.K. retail sales fell less than anticipated in January (-47.0 vs forecast of -53.0).
U.S. Federal Reserve policy makers begin its 2-day monetary policy meeting on Tuesday and they are expected to keep the target lending rate in a range of zero to 0.25 percent, the announcement will be on Wednesday 19:15GMT. Traders are awaiting any plan from the central bank to widen the range of assets it will purchase to ease the credit market conditions.
On the data front, Wednesday will see the release of German Gfk index, CPI and Swiss KOF indicator. However, the focus will remain on Fed's rate decision later in the day.