The dollar edged away from the previous day's four-month lows against the euro and sterling on Tuesday as investors awaited a slew of key U.S. economic data and corporate results to gauge the state of the economy. Investors, having sold dollars in recent sessions on cooling expectations of aggressive U.S. interest rate rises, are now on the sidelines ahead of May trade data which is expected to come in near a record deficit posted in April. Over the last year the greenback has come under pressure on doubts about the sustainability of a high deficit and concerns whether the economy can attract enough capital flows to fund it. "Trade deficit data is the focus. Consensus is for an unchanged figure (from April) but the risk is the euro will test yesterday's high in the case of a wider than expected deficit," said Niels Christensen, senior currency strategist at Societe Generale. By 1130 GMT the euro stood at $1.2363 , down a third of a percent on the day, having hit a four-month high of $1.2436 on Monday.
The single currency shrugged off news the European Union's highest court had annulled a controversial decision by EU finance ministers to suspend disciplinary budget action against France and Germany last year. The suspension had dented the credibility of the Stability and Growth pact on budget discipline and was challenged by the European Commission, the guardian of the pact that underpins the euro. But analysts say the ongoing debate on how to enforce the fiscal pact was not having a direct impact on the euro because it was not translating into significant economic policy shifts. "There is no tangible reaction for the euro unless all these national governments were to stand up and say we will have emergency budgets now to rectify all these issues. That would be fairly negative for growth and probably for the euro. But this is not going to happen," said Ian Gunner, head of foreign exchange research at Mellon Bank.
STEADY BOJ, US DATA
The yen was steady against the dollar at 108.30 . In a widely expected move, the Bank of Japan kept its zero interest rate policy and quantitative easing stance on Tuesday. Japan's government upgraded its view on the economy for the first time in six months because of sustained growth in exports and a stronger-than-expected recovery in personal spending. However, BOJ governor Toshihiko Fukui said the central bank remained firmly committed to its ultra-loose monetary policy. For the United States, much debate is on how sharply interest rates need to rise there, following the first rate hike in four years last month. The Federal Reserve has pledged it will take a "measured" approach but investors are looking for any signs inflationary pressure is gathering pace which would prompt the Fed to take a more aggressive stance. Consumer and producer inflation numbers later this week will be important, as well as retail sales and jobless claims which will give clues on the mood among U.S. consumers. Tuesday's trade figures, due at 1230 GMT, are expected to come in at $48.30 billion in May after a $48.33 billion shortfall in April.
Earnings reports from blue chip companies will also give clues on the health of the U.S. recovery. The world's largest chip maker Intel Corp. and health-care product maker Johnson & Johnson release their second quarter results later on Tuesday. So far in this earnings season, lacklustre reports have weighed on U.S. stocks as well as the dollar. U.S. stock futures are pointing to a steady to firmer start on Wall Street later.///