During early deals on Tuesday, the euro soared to a 4-day high against the dollar and the yen as the European stocks opened higher today, reversing the past two session's sharp losses as investor focus turned to a meeting of G20 world leaders.
At 4:32 am ET, the FTSEurofirst 300 .FTEU3 index of top European shares was up 1.6 percent at 720.58 points. The index, which sank 3.9 percent on Monday, is down 14 percent in 2009, hit by the deepening global economic downturn as well as fears over the health of the banking system.
The euro also gained on speculation assets denominated in the European currency will maintain their advantage over those in Japan even as the ECB policy makers reduce interest rates this week. ECB President Jean-Claude Trichet and his colleagues will probably lower borrowing costs to 1 percent from 1.5 percent at the meeting.
ECB council member Axel Weber said this month that the central bank shouldn't cut interest rates below one percent.
Amid expectations that the ECB will slash rates, the market is focusing on whether the central bank will open the door for quantitative easing as its counterparts in the United States, Britain and Japan have already done.
The Euro-zone March CPI, Italian January retail sales, German March unemployment rate and the French February housing starts, which were released today likely influenced the European currency.
According to a flash estimate from the Eurostat, Euro zone annual inflation slowed to 0.6% in March from 1.2% in February. Inflation has eased to its lowest level since the launch of euro ten years ago.
The Italian statistical office ISTAT said retail sales rose 0.7% year-on-year in January, while economists anticipated 2% fall. Month-on-month, sales were up 0.3% in January compared to a fall of 0.2% expected by economists.
A report from the German Federal Labor Agency showed that seasonally adjusted unemployed rose 69,000 in March, bigger than 50,000 increased in February. Economists had expected a relatively small increase of 52,000. Meanwhile, the jobless rate rose to 8.1%, while economists had forecast the rate to remain at February's revised 8%.
French housing starts dropped 22.1% year-on-year in the three months to February. This comes after a 20.2% fall in the three months to January. Housing permits declined 14.8% in the three-month period to February, marking a larger fall than the 9.1% in the previous period.
The euro, which closed yesterday's trading at 128.45 against the yen rose to a 4-day high of 130.88 during early deals on Tuesday. If the euro-yen pair gains further, it may test resistance around the 133.9 level.
The yen slumped as Japan's jobless rate rose to a 3-year high, reflecting the current economic downturn with companies increasingly reducing their payrolls. The Ministry of Health, Labor and Welfare said today that Japan's seasonally adjusted unemployment rate increased to 4.4 percent in February, the highest since January 2006 and marking the fourth straight month of increase. February's 4.4% rate was up 0.3 percentage point from January and slightly above the market forecast of 4.3 percent.
In early trading on Tuesday, the euro climbed to a 4-day high of 1.3303 against the dollar. The next upside target level for the European currency is seen at 1.364. At yesterday's close, the euro-dollar pair was quoted at 1.3205.
The euro gained against the pound after hitting a 6-day low of 0.9242 at 8:55 pm ET Monday. Currently, the euro-pound pair is worth 0.9315, up from yesterday's New York session close of 0.9252. The near term resistance level for the pair is seen at 0.938.
The pound rose in Asian deals today after a report showed that the consumer confidence in Great Britain improved more than the analyst's expectations. Data consolidator GfK said that consumer confidence was higher for the second consecutive month in Great Britain, suggesting that measures to end the recession are starting to take hold.
The consumer confidence index came in at -30 versus analyst expectations for a score of -37 following the -35 reading in February. British consumers became more optimistic about the general economic outlook over the next 12 months, also upgrading their assessment of the state of the economy over the past 12 months.
The euro strengthened to 1.5197 against the franc before losing ground at 3:20 am ET Tuesday. At present, the euro-franc pair is trading near yesterday's close of 1.5162 with 1.513 seen as the next target level.
The Swiss UBS consumption indicator dropped to 0.89 in February from 0.92 last month, the UBS said today. The indicator thus continued its downward trend and remained below its long-term average of 1.5 for the fifth consecutive month.
Looking ahead of the North American session, today will be a busy day with the releases of the S&P/Case-Shiller home price index for January, Chicago PMI for March and the consumer confidence report for March.
Also, Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to deliver a speech on regulatory reform to the University of Chicago Booth School of Business at 1 pm ET.
Financial markets also look forward to the Bank of Japan's Tankan survey report, which is scheduled for tomorrow. Analysts expect Japan's business sentiment fell to minus 55 in the first quarter from minus 24 in the fourth quarter. If the report comes in worse than expected, the yen may come under heavy selling pressure.
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