The dollar and yen fell against their major opponents in early European deals Tuesday as risk-sentiment improved on market chatter that China is set to unveil a stimulus program to bolster growth.
The market is expecting the red dragon to announce a stimulus package worth over USD 300 billion. Traders are also expecting that the world's second largest economy would cut reserve requirement ratios in coming quarters.
The positive triggers overshadowed the gloom surrounding Spain after the country said it plans to inject public debt instead of cash directly to revive one of its troubled banks.
Spanish 10-year bond yields touched a high of 6.5 percent on Monday, their highest since November 2011, underscoring the problems facing the government as it seeks to stabilize its finances and banking sector.
Spanish Prime Minister Mariano Rajoy said the state was struggling to raise money on the debt market, but insisted the nation's banks would not need an international rescue.
Reports that showed the euro zone governments, banks and large companies are mulling a messy Greek exit from the single currency area also supported the risk-on mood.
The dollar retreated from a 4-day high of 1.2511 against the euro to reach as low as 1.2570 by 3:50 am ET. Further downside pressure could pull the buck back below the previous day's multi-day low of 1.2625.
The pair was rather unaffected by a report showing Germany's import price inflation slowed for the seventh consecutive month in April.
The import price index increased 2.3 percent on an annual basis in April, slower than the 3.1 percent growth seen in March. The rate of growth slowed regularly since September 2011.
Month-on-month, import prices dropped 0.5 percent in April, reversing the previous month's 0.7 percent increase.
The greenback that had challenged last week's fresh 15-month high of 0.9614 against the Swiss franc in the Asian session slipped back to 0.9563 by 3:30 am ET. The next downside bias for the pair is seen around the 0.9530 level.
The recent risk rally pushed the cable back above the key 1.57 level again at the beginning of the London session. The dollar declined as much as yesterday's multi-day low of 1.5719 versus the pound around 3:10 am ET and 1.5730 is seen as its next probable support level in the near-term.
The fresh risk-sentiment helped traders to move away from low-yielding yen on Tuesday and the Japanese currency fell to new multi-day lows of 78.70 against the Australian dollar, 77.90 against the Canadian dollar and 60.81 against the New Zealand dollar in early deals.
The yen was also trading lower at 125.01 against the pound, 83.19 against the Swiss franc and 99.96 against the euro around 4:00 am ET. The dollar-yen pair held steady and was hovering around the 79.50 level around the same time.
Looking ahead, Germany's preliminary inflation report for May, S&P Case-Shiller home price for March and the US consumer confidence data for May are expected to provide further direction to the market in upcoming hours.
Source: RTT News