LONDON (AFX) - The euro was firm in early London trade, benefiting from a weakness in the dollar and U.S. stock markets ahead of tomorrow's Federal Reserve's Open Market Committee rate announcement, dealers said.
"The euro has been trading much better in adversity for the last two weeks, coping with bad news much better. It looks as if the market is short of it," according to Kit Juckes, strategist with the Royal Bank of Scotland.
He said: "It does look as if it has scope to gain a couple of percentage points over the next week or so."
Analysts at WestLB wrote in a note to clients that yesterday's positive German inflation data, which supports the view that the European Central Bank will cut rates in July, also weighed on the dollar relative to the euro.
A trader with a large U.S. bank said: "We've just seen dollar/euro stops going through at 0.8625 usd. If we get a break of the 0.8680 usd, we will see a few stops go through on the euro and maybe try to push higher."
He added: "The euro certainly looks supported at around the 0.8575 usd level."
Juckes pointed out that the U.S. equities market was pretty weak which was not helping the dollar.
"Generally the market is positioning itself ahead of the FOMC meeting," he said.
Market watchers will be keeping an eye on today's U.S. May durable order goods and the June consumer confidence figures, due at 1.30 and 3.00 pm respectively.
They said weaker data will raise expectations for a 50 basis point cut on Wednesday. This, in turn, is unlikely to be dollar supportive, analysts said.
Sterling was marginally higher against the dollar, but somewhat weaker against the single European currency.
"Some of the euro's strength this morning has been at the expense of sterling," dealers said.
Euro/sterling was trading at 0.6123 at 8.30 am.