The pair rose on Monday trading due to the weakness in the dollar after a successful bond selling in France which managed to overshadow the S&P downgrade to a number of euro area economies, including the top-rated France and Austria.
Franceauctioned 8.59 billion euros of debt with lower yields; the government sold 4.503 billion euros of 12-week bonds with a yield of 0.165%, compared with 0.167% in the prior sale of 13-week notes last week. It also sold 2.192 billion euros of 25-week treasury bills which also saw a decline in borrowing cost to 0.281% versus 0.286% last week, where the 51-week bills showed a decline in yield to 0.406% from 0.454% in the prior auction.
In fact, the successful bond selling dwarfed the grim impact of the S&P downgrade to several euro area countries and Moody's threat that it will updateFrance's top rating this quarter.
Yet, fears remained in markets after the S&P downgrade on speculations the European Financial Stability Facility (EFSF) is at risk of facing a similar downgrade to its top rating and may face a reduction in its lending capacity of the EFSF to 180 billion euros, where this week the EFSF is set to auction 1.5 billion euros of six-month bonds.
Also, this weekGreecewill resume talks with private sector debt holders, specifically on January 18 after the halt of the negotiations on January 13, to reach an agreement over the size of losses to be bared by creditors to avert a possible default as early as in March.
Still the main focus remains on the euro, especially amid the lack of fundamentals from theUnited Statesdue to Martin Luther King holiday and other major economies.
On Tuesday, theUnited Kingdomis set to start the day with the Inflation Report for December at 09:30 GMT. UK CPI is expected with 0.4% rise on the month after 0.2% and on the year to slow further to 4.2% from 4.8% a comforting sign to the BoE and to markets to bet on more quantitative easing. Core CPI inflation is expected to slow as well to 3.0% from 3.2%.
The RPI Index is expected with 0.4% gain on the month after 0.2% and on the year to slow to 4.8% from 5.2% and excluding mortgage payments to slow to 4.9% from 5.3%.
As for theUnited States, the day will start at 13:30 with the January Empire Manufacturing index which is expected with improvement to 10.50 from 9.53.
The data will probably affect the pair's movement, yet the pair will most likely be more affected by the general sentiment which will focus on auctions for a number of euro area economies, includingSpainandGreece.