The euro bounced higher on Tuesday in jittery trading ahead of a euro zone interest rate decision this week, while the yen held firm, supported by expectations for a solid economic recovery in Japan. Investors were reluctant to tilt their positions either way ahead of big events later in the week including a European Central Bank meeting and Japan's "tankan" survey of business sentiment, both on Thursday. Friday brings keenly-awaited U.S. non-farm payroll figures, which are expected to show that U.S. companies are finally hiring aggressively -- which could raise expectations for a quicker end to the Federal Reserve's low-rates stance. Recent comments by ECB officials increased expectations the central bank might be preparing the ground for a rate cut as soon as this week, taking the euro down to this year's low on Monday, but some say selling might have been overdone. "We are basically waiting for three important things to happen this week - that is the ECB, tankan and payrolls," said Mark McFarland, currency strategist at UBS.
"Expectations for an ECB rate cut are still there but for the ECB, until they get a clear picture on the economy, they don't want to start changing a rate profile aggressively." By 0745 GMT the euro was up a third of a percent against the dollar at $1.2200 having tumbled to this year's low of $1.2047 on Monday. Against the yen it was at 129.10 after hitting a four-month low of 127.21 in the previous session. The dollar was higher at 105.76 yen , having slipped to a six-week low of 105.23 on Monday.
JAPAN'S FX STANCE
The yen zoomed higher on Monday after a British newspaper cited Bank of Japan officials as saying Japan's yen-selling intervention has officially ended. Finance Minister Sadakazu Tanigaki repeated on Tuesday that Japan's currency policy had not changed and that it would intervene if market rates strayed from fundamentals. "Given that the dollar stopped its fall yesterday just above 105 (yen) on what looked like intervention, the market has decided that at least until the end of March it's a little risky to buy yen," said Mitsuo Imaizumi, deputy general manager of the international bond and forex department at Daiwa Securities SMBC. Later on Tuesday, the U.S. consumer confidence index is due at 1500 GMT. Analysts say confidence has been undermined by a sluggish labour market, rising gasoline prices and security concerns after the Madrid bombings. Economists polled by on average expect the index to fall to 86.5 in March from 87.3 in February. U.S. non-farm payrolls on Friday are expected to have risen by around 100,000 in March, compared to a disappointing figure of 21,000 in the previous month.
The previous employment report at the beginning of this month showed an increase in payrolls far smaller than expected, and reaffirmed the view the Fed will not have to raise official interest rates from 1.0 percent soon. Euro zone interest rates are currently 2.0 percent.///