Euro Higher After Positive Data

The euro was higher, underpinned by solid German and Chinese economic data, but it pared early gains against the dollar as the euro-zone crisis continued to weigh on investor confidence.

In late-afternoon New York trade, the euro was at $1.2740 compared with $1.2667 late Monday. The dollar was at ¥76.81 compared with ¥76.79, while the euro was at ¥97.856 compared with ¥97.25. The pound traded at $1.5337 compared with $1.5326, while the dollar bought 0.9492 Swiss franc from 0.9543 franc.

Better-than-expected growth data for China got the session off to a positive start and propelled the Australian dollar to an 11-week high above $1.04 against the greenback. By late afternoon, the Aussie dollar was at $1.0382 from $1.0314 late Monday.

The euro then briefly touched $1.28 after monthly data showed a sharp improvement in Germany's ZEW indicator of economic sentiment, suggesting Europe's largest economy would stabilize in the next six months rather than deteriorate, as had been signaled previously.

But the common currency gave back some gains as the euro-zone sovereign-debt crisis loomed large again for currency traders, despite solid treasury bill auctions from Spain and the euro-zone's emergency bailout fund.

"While the Chinese and German data are looking positive, the problems in the euro zone are just too hard to ignore which is holding back the euro," said Ian Stannard, head of European foreign exchange strategy at Morgan Stanley.

Spain sold €4.88 billion ($6.18 billion) in treasury bills at lower yields thanks to strong demand, providing further hints that the European Central Bank's offer of unlimited liquidity for the region's banks is indirectly helping to bring down sovereign borrowing costs.

The European Financial Stability Facility six-month treasury bill auction was also three times oversubscribed, despite Standard & Poor's downgrading Monday of its credit rating.

The U.S. dollar index declined after the data from China and Germany gave investors some confidence in shorting out of the greenback's relative safe-haven status.

The ICE dollar index, which measures the greenback against a basket of six currencies, recently fell to 81.13, down 0.5%.

"The dollar is trading on the back foot amid the improvement in risk appetite following better-than-expected Chinese data, a good showing from the euro-zone sovereign bill auctions and a surge in the German ZEW," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

On Monday, the euro held its ground amid heightened fears of a Greek default, with traders trying to determine how much of the rating downgrades from Standard & Poor's had been priced into the market. U.S. stock and bond markets were closed monday for Martin Luther King Day, which can often reduce currency trading activity.

"Risk is having a good day," said Annette Beacher, a strategist at TD Securities. "There is still some caution to be exercised."

read more: Olympus Wealth Management