The euro rose against most major currencies in European business Tuesday as London traders returned after a three-day weekend to what should be a testing week for investors' nerves ahead of policy decisions in the U.S. and euro zone.
The single currency added almost a cent against the dollar to trade at a daily high of $1.2562, buoyed in part by what traders said was one-off buying from two large banks. The euro's rise against the dollar in August's thinned trading triggered a three-week high against sterling and six-week highs against the Australian and New Zealand dollars.
These signs of market confidence come before the European Central Bank's monetary policy meeting and news conference Sept. 6, and Federal Reserve Chairman Ben Bernanke's policy speech at a symposium in Jackson Hole, Wyo., on Friday.
U.S. employment data are also due Friday.
Price action in the currency options market—a gauge of nerves among traders and investors—suggest rising apprehension ahead of the Jackson Hole speech and the ECB meeting.
"With Jackson Hole this week, U.S. payroll data, as well as the European Central Bank meeting all in the next week, it's no surprise that the market tone is somewhat edgy," said Kit Juckes, chief currency strategist at Société Générale in London.
"Europe will not see any news to support the euro, but then no-one expects any. The latest bounce [in the euro] may have taken out some [short-term bets] but it has done nothing to break the overall downtrend. Tactically, many will be reluctant to re-sell ahead of the ECB meeting," he said.
The Japanese government cut its view of the local economy in August for the first time in 10 months amid slowing exports. This boosted the yen for a short time, reflecting the currency's tendency to rally on downbeat news.
In emerging Europe, the Hungarian central bank is widely expected to hold interest rates at a record-high 7% at its policy meeting at 1200 GMT as inflation in the country is too high to justify a rate cut.
Looking ahead, the Johnson Redbook retail sales index is due at 1255 GMT.
Around midday in Europe, the euro was trading at $1.2550 against the dollar, compared with $1.2499 late Monday in New York. The dollar was at ¥78.62 against the yen, compared with ¥78.75, while the euro was at ¥98.68, compared with ¥98.43. Meanwhile, the pound was trading at $1.5791 against the dollar, compared with $1.5794 late Monday in New York. The Wall Street Journal dollar index, which tracks the U.S. dollar against a basket of currencies, was at 70.948 from about 71.140.
