Despite trading narrowly in NZ/AUS following U.S. holiday on Monday, euro came under renewed selling pressure on Tuesday, the single currency nose-dived to a fresh 4-year low of 1.2110 in European mid-day on fears that recent lingering debt crisis would spread to European banks together with the early selloff in European equities (FTSE, DAX and CAC all once dropped by more than 2%). However, euro staged a strong on active short-covering after the release of a batch of solid U.S. data and rallied to as high as 1.2355 in NY morning. Later, the single currency pared intra-day gain and ended the day at 1.2229.

U.S. construction spending rose by 2.7% in April, much higher than economists' forecast of no change whilst U.S. ISM manufacturing in May was 59.7, also better than the expectation of 59.0.

Earlier, ECB, in its Financial Stability Report, warned that the European banks might face up to 195 billion euros in a potential loan loss over the next 18 months, fueling worries that the European debt crisis might spread from the public to private sector. German Finance Minister Wolfgang Schaeuble hinted that taxes may have to rise to consolidate Germany's finance and may not resonate well with the German populace. In addition, French Economy Minister (FINMIN) Christine Lagarde said on Tuesday 'French exporters appear satisfied with the weaker level of euro as they complained the single currency was too strong when it was at 1.4500 level versus the greenback.'

On economic front, German manufacturing PMI came in at 58.4 whilst unemployment rate eased to 7.7%. Eurozone manufacturing PMI was 55.8 and unemployment rate unchanged at 10.1%.

Versus the Japanese yen, the greenback weakened to 90.54 in European mid-day but the pair swiftly rebounded from there and rose sharply to 91.46 in NY mid-day on better-than-expected U.S. data. US stocks went through a volatile day as DJI once scored a modest gain but ended the day down by 1.11% (112 points) at 10024.02.

Cable briefly dropped to 1.4439 in tandem with euro in European morning, however, active cross buying lifted price and the British pound rallied above 1.4600 to as high as 1.4723 on speculation that Prudential would soon announce that it would abandon its takeover bid for AIG's Asian unit. Cross-buying in pound helped cable as euro tumbled below key daily support at 0.8400 and dropped to 0.8323 versus sterling, its weakest since December 2008. Cable later retreated from said high and ended the day at 1.4648. On economic front, U.K. CIPS manufacturing PMI remained unchanged at 58.0 in May, slightly above the 57.8 consensus forecast.

Bank of Canada announced on Tuesday to raise it's overnight interest rate from 0.25% to 0.50% while the Reserve Bank of Australia kept interest rate unchanged at 4.5% as widely expected. BoC suggested modest tightening would be likely in coming months but the RBA stated such setting of monetary policy as appropriate for the near term. Aud/usd tumbled from 0.8475 to 0.8281 while usd/cad fell from 1.0564 to 1.0421.

Economic data to be released on Wednesday include: Australia GDP, U.K PMI construction, Swiss retail sales, E.U. PPI and U.S. pending home sales.