Tuesday, Jul 03, 2012

 

   By Nicole Hong 

 

The euro strengthened modestly against the dollar and the yen Tuesday, lifted by better-than-expected U.S. economic data in light trading ahead of the U.S. Independence Day holiday.

U.S. factory orders in May climbed 0.7%, more than the expected 0.1% gain. The report helped to offset Monday's weak manufacturing reports from the U.S. and China, which had stoked fears of a global slowdown and sent the euro lower.

Analysts said the currency's rebound Tuesday could also be the result of lingering optimism from last week's European Union summit, where leaders agreed to create a single banking supervisor and expand the use of rescue funds.

"The market's getting used to the idea that the immediate systemic risks the euro crisis might have posed have dissipated for the time being," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.

The euro added 0.3% to $1.2609 from $1.2573 late Monday.

Trading volumes were light Tuesday ahead of the U.S. holiday Wednesday. Currency traders were also reluctant to take large positions before a European Central Bank meeting on Thursday, where the ECB is widely expected to cut its benchmark interest rate by 25 basis points.

However, if the ECB goes further, the euro would move lower because additional easing measures haven't been fully priced in by the market, said Mary Nicola, currency strategist at BNP Paribas in New York.

Market participants are also watching to see what the U.S. Federal Reserve will do to shore up the economy. Friday's monthly U.S. nonfarm payrolls report should provide some clarity on the Fed's next step. The last few reports have come in below expectations, and more weak data would strengthen the case for additional stimulus from the central bank.

The June unemployment rate is expected to remain unchanged at 8.2%, with 95,000 jobs added.

With investors willing to buy riskier currencies Tuesday, the yen fell. Both the dollar and the yen tend to weaken when traders seek higher-yielding bets. Against the yen, the dollar was higher at Y79.792 from Y79.501 late Monday. The euro was at Y100.613 versus Y100.035.

The Australian dollar and the Canadian dollar, which are closely linked to commodities, were also beneficiaries of the risk-positive environment. The Australian dollar was trading at $1.0282 versus $1.0248 late Monday.

The pound recently fetched $1.5688, compared with $1.5692 late Monday. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was trading at 81.786.

--Georgia Wells contributed to this article.

Write to Nicole Hong at nicole.hong@dowjones.com.

(END) Dow Jones Newswires

July 03, 2012 17:05 ET (21:05 GMT)