The single currency climbed above 1.2300 and reached a two week high at 1.2350 versus the dollar as solid debt auctions together with rally in global stocks boosted risk appetite, driving investors to cover their short positions in euro.
Although the single currency initially extended decline from Monday's 1.2298 high and fell to 1.2168 in European morning as price was pressured by the release of a much weaker-than-expected German ZEW June index which came in at 28.7 versus the economists' forecast of 42.0, euro rebounded strongly from there and traded with a firm undertone as European equities turned into positive territories. The single currency then climbed higher and eventually rallied to 1.2350 in NY afternoon before stabilizing.
Euro was supported as solid demand at European debt auctions waned worries about the European debt crisis. Belgium raised 2.5 billion euros in a heavily oversubscribed auction while Spain raised 5.2 billion euros in the market. Ireland also sold 1.5 billion euros in bonds on Tuesday at the top of its target range. Firmness in global stocks brought return of risk appetite as DJI rose by 2.10%, FTSE 100 jumped by 0.3%, CAC 40 rose by 0.98% and DAX climbed by 0.98%. The Chief Economist of Germany's DIHK chambers of industry and commerce, Volker Treier also said it would realistic to expect the euro to rise to $1.30 or above in the course of the year.
Although the British pound moved narrowly in Asia, price tumbled briefly to 1.4682 in European mid-day as lower-than-expected U.K. inflation pressured cable. However, the pair subsequently rebounded from there in tandem with euro and climbed above Monday's high of 1.4810 to 1.4838 in NY mid-day due to firmness in global stocks. On economic front, U.K. May CPI came in at 0.2% m/m and 3.4% y/y, weaker than economists' forecast of 0.3% m/m and 3.5% y/y and well below 0.6% m/m and 3.7% y/y in April.
Versus the Japanese yen, the greenback briefly rose to 91.70 in Asia but then tumbled from there and fell to 91.08 in European morning. However, the pair managed to rebound on cross-selling in yen due to improved risk appetite as U.S. stocks surged.
In other news, St. Louis Federal Reserve Bank President James Bullard said the U.S. economy would not slide into a double dip and inflation risks linger in the medium term. U.S. NY Fed's Empire State index came in at 19.57 in June versus the consensus forecast of 20.0 and 19.11 in May. U.S. Treasury Department said foreign investors reduced purchases of long-term U.S. securities in April but remained net buyers while China raised its U.S. Treasury holdings for a second straight month. Net long-term foreign purchases fell to $83 billion in April from a record of $140.5 billion in March.
Bank of Japan kept interest rates unchanged at 0.1% as widely expected. BOJ said it has offered an unlimited amount of 3-month dollar funds at a fixed rate of 1.23% in a dollar swap facility with Fed, starting from June 17, to ease strains in credit markets rattled by the eurozone sovereign debt crisis. The results of the operation showed it attracted total bids of $3 million and indicated there would be no great need for dollar funds among banks.
Economic data to be released on Wednesday include: Australia Westpac leading economic index , Japan BoJ Monthly Report , Machine tools orders , U.K. Claimant count , ILO unemployment rate , Swiss ZEW index , EU HICP , Labour cost , U.S. Building permits and Housing Starts , PPI , Capacity utilisation and Industrial prod'n.