The euro mostly traded in a range, holding steady against the dollar after a well-received Dutch government auction. Investors were cautious though, after euro dipped briefly as Spanish and Italian yields rose after government bond auctions. Meanwhile, political uncertainty over the growing prospect of a change of government in France continues to weigh on the single currency. Furthermore, the collapse of the Dutch government on Monday over austerity measures added to market nervousness.
Looking ahead, the focus is on the Fed fund rate announcement tomorrow and the FOMC economic projections.
EURUSD traded the European session between 1.3150 and 1.3183.
The euro was little changed against the Swiss franc, with EURCHF trading between 1.2014 and 1.2020.
EURJPY opened in Europe at 106.45 and rose early to 107.08 before consolidating.
USDJPY opened at 80.89 and rose to 81.25. Yen remains vulnerable ahead of the Bank of Japan meeting on Friday as well as the US Fed meeting tomorrow. Speculation is for the BOJ to introduce more policy easing, which usually weakens the yen.
Sterling rose against most counterparts as investors bought the currency as a better alternative than the euro or dollar. The pound has been buoyed on speculation that the Bank of England will not expand quantitative easing at its next meeting given the recent strong UK economic data. EURGBP fell to a twenty-month low of 0.8143 despite an early session attempt to rise to a high of 0.8169. GBPUSD rose to the highest level since 31 October 2011, hitting 1.6162.
The Canadian dollar has been strengthening and is expected to outperform the US dollar due to the differential in interest rates. The Bank of Canada is expected to raise rates at its next meeting, while the US Fed is not. The BoC raised both its growth and inflation forecasts for this year and said the economy would return to full capacity. USDCAD has been declining since yesterday, reaching a low of 0.9885. However, disappointing Canadian retail sales data late in the European session reversed the loonie’s gains.
The Australian dollar retraced during European trading after a sharp fall against the US dollar in Asian hours following lower than expected inflation data. CPI rose by 0.1 percent in the first quarter, the slowest in a decade, fuelling expectations for a rate cut by the Reserve Bank of Australia at next week’s policy meeting. AUDUSD fell to 1.0246 in Asia, and retraced to 1.0303 in European trading, the downtrend expected to resume.