The US dollar responded positively to news from ADP Employer services that 522,000 jobs were lost in the U.S. private sector in January from a revised 659,000 job loss in December. Despite positive news, investors remain cautious ahead of Friday's U.S. jobs data and the second round of fourth-quarter corporate earnings data out in the next few weeks. As risk appetite remains weak, safe haven flows will continue to be dollar supportive.

The Japanese yen gained as risk appetite evaporated on ongoing worries about sluggish global economic growth and the delay in the passage of a U.S. fiscal stimulus plan. Risk aversion will continue to provide support to the yen.

The euro gave back yesterday's gains after the region's retail sales fell 1.6 percent in December, more than forecast, supporting the case for more rate cuts in the euro zone. However, the European Central Bank is expected to keep interest rates on hold tomorrow at 2 percent. ECB President Jean-Claude Trichet last week said the next important meeting will be in March.

British pound gains were limited on bets the Bank of England will likely cut rates by 50 bps to a new record low of 1 percent this Thursday. Talk that the British economy will continue to shrink until the fourth quarter this year also put pressure on the sterling. Sentiment for the sterling remains sour in the near-term on concerns that BOE may need to do more than cut rates to spur growth.

The Australian dollar extended its rally as Australia's economic outlook improved on Tuesday after the government initiated a A$52 billion stimulus package, and the central bank aggressive interest rate cut of 100 bps to a record low of 3.25 percent. However, gains are expected to be limited on recession worries. Meanwhile, Aussie's neighbor, the New Zealand dollar is trading steady ahead of tomorrow's domestic employment data, which is expected to reveal a continued sluggish jobs outlook. Elsewhere, the Canadian dollar is trading stronger near $1.2235. However, the currency remains volatile as investors continue to shy away from riskier investments.