LONDON—The euro was mostly higher on 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.
The euro was trading at $1.2777 compared with $1.2666 late Monday in New York. The dollar was at ¥76.79 compared with ¥76.78, while the euro was at ¥98.11 compared with ¥97.25. Meanwhile, the pound was trading at $1.5377 compared with $1.5337 late Monday in New York.
Better-than-expected growth data for China got the session off to a positive start and propelled the Australian dollar to an 11-week high above $1.04 against the greenback.
The euro then briefly touched $1.28 after monthly data showed a sharp improvement in German investor confidence, suggesting Europe's largest economy would stabilize in the next six months rather than deteriorate, as had been signaled previously.
But the common 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.
"While the Chinese and German data are looking positive, the problems in the euro zone are just too hard to ignore which is holding back the euro and preventing it from participating in a rally," said Ian Stannard, head of European foreign exchange strategy at Morgan Stanley.
Spain sold €4.88 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 Standard & Poor's downgrading Monday of its credit rating.
Sterling also struggled to gain momentum against the dollar and euro and was broadly unmoved by the U.K.'s consumer-price inflation numbers for December, which showed the biggest month-to-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.
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.
Looking ahead, U.S. Empire State manufacturing survey results are expected at 0830 ET, while the Bank of Canada is expected to hold interest rates at 0900 ET.
