The euro firmed against the dollar in early trade as investors remained wary of the US economy ahead of Friday's labour report and of the apparent breakthrough in UN-Iraqi negotiations over weapons inspections, dealers said.
"We have seen a massive rally in US equities, which initially supported the dollar," WestLB Research currency analyst Michael Klawitter said. "But the fact that euro/dollar remained above $0.98 is indicative of the fact that the market is not fully trusting of the situation. There remains a lot of uncertainty, particularly relating to the return of weapons inspectors to Iraq," Klawitter said.
"Also, with Friday's labour market numbers ahead, market participants will not be willing to take any clear position," he said.
Halifax chief currency strategist Steven Pearson agreed that "the forex market remains fairly impassive in the fact of equity market gyrations".
Pearson too said relief at the apparent resolution of the weapons inspections row has been shortlived. Dealers said today's euro zone economic confidence figures are expected to have as little impact on the single currency as the weak purchasing managers index for manufacturing did earlier in the week.
Elsewhere, the yen came under pressure overnight due to equity weakness and investor frustration over economic reform prospects, Pearson said. In the UK, investors shrugged off prime minister Tony Blair's rallying call for euro entry yesterday.//www.ananova.com