(Reuters) - The euro held steady against the dollar but fared well against other major European currencies on Tuesday as surprisingly strong German data and a solid sale of Portuguese bonds allayed concerns about the euro zone economy and its debt burden.
The euro, which is down 0.9 percent against the dollar
so far this year, could weaken further should the euro zone continue to languish
in a recession that motivates the European Central Bank to ease monetary policy
further after cutting interest rates last week.
But Germany on Tuesday
reported an unexpected rise in industrial orders in March, compared with
expectations for a drop, prompting investors to curb euro short positions
earlier in the session.
"An uneven dollar steadied against the euro,
fell against the yen, and exploded to multi-month highs on the Aussie dollar,
the session's standout underperformer," said Joe Manimbo, senior market analyst
at Western Union Business Solutions in Washington.
The Reserve Bank of
Australia surprised investors earlier in the global session by cutting interest
rates to a record low of 2.75 percent, pushing the Australian dollar to a
two-month low of US$1.0152.
"Traders today leaned toward risk,
emboldened by upbeat German factory data and Australia's joining the global
central bank easing campaign," Manimbo said.
The market had been divided
on the chances of an Australian rate cut. The growth-linked Aussie dollar was
last at US$1.0178, down 0.7 percent on the day.
Sebastien Galy, foreign
exchange strategist at Societe Generale in New York, said the Aussie's rebound
from key support at $1.0150 was noteworthy.
The rise showed that despite
the RBA's rate cut, there is strong demand for the Aussie because it still
offers an attractive yield advantage over the U.S. dollar.
Tuesday flocked to buy Portugal's first 10-year bond in more than two years,
putting the country on course to exit its bailout on time and qualify for an ECB
debt support program.
Portugal's preparations to issue a new benchmark
10-year bond are an "enormous success," ECB policymaker Yves Mersch said on
The euro hit a session high of $1.3131 after the German data,
but last traded flat at $1.3074.
The single currency fared much better
against the Swiss franc, rising 0.2 percent to 1.2294, and gained versus the
British pound, rising 0.4 percent to 0.8446 .
EURO SEEN AS SUPPORTED
Camilla Sutton, chief currency strategist at Scotiabank in Toronto, sees
the euro as better supported than the dollar in the near term because the ECB is
not engaged in the type of aggressive monetary stimulus the Federal Reserve has
"The truth is relative monetary policy still favors the ECB
in terms of currency strength," Sutton said. "As long as the ECB is not engaged
in any balance sheet expansion, that's currency-positive, and even if there's a
risk of lower rates, the interest rate differential between the euro and the
dollar is so close, it's not even material."
She said the euro could
hold that $1.30 level over the next few weeks.
In the options market,
one-month implied volatilities were near their lowest since January, indicating
the euro was likely to stay in a range against the dollar. The euro has been
trading between $1.2740 and $1.3243 since March.
Support for the euro is
seen around $1.3024, the 76.4 percent retracement of its April 24-May 1 rally,
and the 55-day moving average at $1.3021. Traders also cited bids from Asian
sovereign accounts at sub-$1.3050 levels.
The yen, meanwhile, rose
against the dollar and euro. Concerns about political tensions surrounding Iran
and Syria prompted investors to seek the yen's safety, analysts said.
The yen is viewed as a safe haven because it is a highly liquid
currency. In times of crisis, Japanese investors tend to bring home their
savings invested in overseas assets.
The dollar fell 0.4 percent against
the Japanese currency at 98.98 yen, while the euro was down 0.3 percent at
129.48 yen, according to Reuters data.