The EUR was mostly firmer in European trade Tuesday, underpinned by solid German and Chinese economic data, but it struggled to make much headway against the dollar as the euro zone crisis continued to weigh on investor confidence. Better-than-expected growth data for China got the session off to a positive start and propelled the AUD to an 11-week high above $1.04 against the greenback. The EUR then briefly touched $1.28 after monthly data showed a sharp improvement in German investor sentiment, suggesting Europe’s biggest economy would stabilize in the next six months rather than deteriorate, as had been signaled previously. But the single currency then eased back as the euro-zone sovereign debt crisis loomed large again for currency traders, despite solid treasury bill auctions from the Kingdom of Spain and the euro-zone’s emergency bailout fund.
GBP also struggled to gain momentum against the dollar and EUR and was broadly unmoved by the U.K.’s consumer price inflation numbers for December, which showed the biggest month-over-month decline since April 2009, potentially paving the way for more quantitative easing by the Bank of England in February. Data also showed euro-zone inflation slowing in December, raising the chances of another rate cut from the ECB.
Spain sold EUR4.88 billion in treasury bills at lower yields thanks to strong demand, providing further hints that the European Central Bank’s offer of unlimited liquidity for the region’s banks is indirectly helping to bring down sovereign borrowing costs. The European Financial Stability Facility six-month treasury bill auction was also three times oversubscribed, despite S&P downgrading Monday of its credit rating.
Elsewhere, the European Commission was expected to hand Hungary an ultimatum to back down on controversial political reforms or face legal proceedings. Despite that, the Hungarian forint held up on the back of the improved broader market sentiment.
U.S. Empire State manufacturing survey results are expected at 1330 GMT, while the Bank of Canada is expected to hold interest rates at 1400 GMT.
EasyForexNews Research Team