Euro advanced versus the dollar on Tuesday recovering from multi-week low of 1.4045 as the German ZEW sentiment index improved by more than expected in August, giving further credence to eurozone’s economic recovery following the upbeat GDP data from Germany and France last week. The ZEW index for Germany rose to 56.1 in August from 39.5 in July, sending the indicator to its highest level since April 2006. A separate report showed that eurozone ZEW index also came out better-than-expected at 54.9 compared to the consensus forecast of 43.0. The pair retreated in New York morning, however, buying interest on dips lifted euro again as stocks gained across the globe. DJI closed up 82.60 points or 0.90%, Nasdaq added 25.08 points or 1.30% and S&P advanced 9.94 points or 1.01%.
Although the greenback rose to as high as 95.30 against the Japanese yen in European afternoon on Tuesday, dollar pared the intra-day gains after U.S. housing starts fell in July. However, the fifth straight month rise in single-family home construction kept hopes alive that the housing sector is recovering from recession. The Commerce Department said that housing starts dropped 1% last month to an annual rate of 581,000 units.
The British pound rose against the greenback on Tuesday from a one-month low of 1.6275 formed on Monday after British inflation unexpectedly held steady in July and strong German investor sentiment boosted demand for higher-yielding assets. U.K. office for National Statistics report showed that the inflation rate stayed steady at 1.8% in July, higher than economists' forecast of 1.5%, however, it was still below the Bank of England’s 2% target. Cable strengthened to 1.6589 in New York afternoon and cross buying in the pound also helped to lift sterling as eur/gbp tumbled from 0.8630 to 0.8524 and gbp/jpy rallied from 154.10 to 157.08.
Elsewhere in the markets, the International Monetary Fund’s chief economist Olivier Blanchard said that the global economic recovery has picked up but refocusing the U.S. toward exports and Asia toward imports is required to sustain the recovery. However, Olivier warned that the global growth will not be strong enough to reduce unemployment, which would reach its peak some time next year.
Data to be released on Wednesday include Australia Westpac leading economic index; Japan all industry index and machine tools order; German PPI; eurozone current account; U.K CBI industrial trend index and BOE meeting minutes; Canada CPI and leading indicators.