The euro continues to soar to new heights

The *US dollar* edged higher against the yen after a
much-stronger-than-expected U.S. consumer confidence index for
January. The Conference Board said its index of consumer attitudes
jumped to 60.6 in January, the highest since May 2010. Additionally,
data showed U.S. single-family home prices fell less than expected in
November.

Despite some early morning profit taking on the euro resulting from
the positive data out of the U.S., the euro continued its march higher
against the USD and GBP.

The *euro* continues to soar to new heights, reaching fresh 2 ½ month
highs against the USD and GBP, as the pound extended broad losses on
data showing a shock contraction in fourth quarter UK gross domestic
product.

Adding additional support to the euro, German Deputy Finance Minister
Joerg Asmussen said there is no crisis in the euro currency, and that
Berlin would do whatever it takes to support the stability of the euro
zone.

Expectations the European Central Bank would lift interest rates
before the U.S. Federal Reserve have underpinned the single currency
this month due to tough talk on inflation and interest rates by ECB
chief Jean-Claude Trichet.
The *British pound* took a hit as data showed GDP unexpectedly fell by
0.5%, causing markets to scale back expectations for higher UK
interest rates and sending the pound sharply lower against all major
currencies.

A weaker-than-expected reading of UK retail sales which suggests
sluggish consumer demand, highlighted the fragility of the economic
recovery.

Some economists said the surprisingly poor reading suggested the Bank
of England would be much more cautious about the threat of lasting
inflation, which would weigh down the UK currency. Others argued the
impact of persistent price pressures on a weak economy would heighten
the risk of stagflation, which would also be negative for sterling.
The *Japanese yen* continues to trade within recent ranges against the
USD, garnering strength as the dollar is pummeled by the euro.
The *Canadian dollar* slumped to a session low against its U.S.
counterpart on Tuesday after domestic inflation data came in softer
than expected, reducing the chance of a near term rate hike.
The *Australian dollar* weakened in the face of lower-than-expected
consumer inflation data, which reinforced market expectations the
central bank will likely not hike interest rates until well into the
year.

Many analysts believe this is only a temporary setback for the
currency, with price pressure set to climb and the Reserve Bank of
Australia (RBA) still on track to tighten policy later this year, and
still far ahead of most other developed nations.

The *New Zealand dollar* escaped most of the drama faced by the
Aussie, to remain firm against the USD. The main event this week is
the Reserve Bank of New Zealand's interest rate review on Thursday,
although the chances of an interest rate rise are seen at virtually
zero given the sluggish nature of the domestic economy.
Source: Fxstreet.com