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 Investors also looked ahead to an economic policy update from Japan
later in the day.
In Europe, the German Ifo survey at 0800 GMT is likely to provide
signs of how companies in the euro zone's largest economy are
responding to recent easing measures by the European Central Bank.
Its business climate index is forecast to show a reading of 110.2 in
June, down from 110.4 in May while the expectations index is
forecast to dip to 105.9 from 106.2. <ECONDE>
On Monday, German PMI data fell short of expectations, suggesting
the economy could be losing momentum. Further evidence of that would
be likely to keep pressure on the ECB to ease policy even further in
the coming months.
"There is a downside risk to the Ifo expectations survey but we will
need a reading of 104 and below to see the euro drop sharply," said
Jeremy Stretch, head of currency strategy at CIBC World Markets.
The euro was flat on the day at $1.3605 <EUR=>, having traded on
either side of $1.3600 in the past few sessions. Against the yen,
the common currency stood at 138.75 <EURJPY=R>, while the dollar
fetched 102 yen <JPY=>.
ABE AND CARNEY
Japanese Prime Minister Shinzo Abe will detail his so-called "Third
Arrow" policies including phased corporate tax cuts and changes to
the $1.26 trillion Government Pension Investment Fund (GPIF), the
world's biggest pension fund.
Given that many of the reforms have already been leaked or announced
by officials, the risk is that they could receive a lukewarm
response from investors. But the market will be keen to see how they
are fleshed out and implemented.
"Much of the attention, particularly from foreign investors, is on
GPIF reform," said Shinichiro Kadota, chief Japan FX strategist at
Barclays Bank in Tokyo.
"But judging from what the GPIF has been implying so far, portfolio
allocation details are not expected to be revealed until August or
even October, so any market reaction today is likely to be limited."
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Abe's government is pushing the GPIF to buy more stocks and invest
less in government bonds, which is expected to have repercussions on
financial markets given the fund's size.
Meanwhile, Bank of England Governor Mark Carney's appearance at a
parliamentary committee at 0830 GMT (4.30 a.m. EDT) could be a
potential driver of sterling.
Of particular interest for traders is whether Carney will provide
more hints of an early rate hike, after he suggested as much earlier
in the month and set sterling on course for a near six-year peak
versus the dollar.
The pound traded at $1.7025 <GBP=D4> after reaching $1.7064, its
highest since October 2008. Traders said if investors get the
impression from Carney that a rate hike is unlikely before the year
end, the currency would be sold off.
"If that happens, we could see a pullback in sterling but any rise
in euro/sterling should be sold into," added CIBC's Stretch.
(additional reporting by Ian Chua; Editing by John Stonestreet)
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