LONDON: The euro clawed back some ground against the dollar in a choppy start to trade in Europe on Tuesday, with investors looking to the ZEW survey of German investor sentiment and events in Japan and the United States later for new direction.
The yen ticked lower on confirmation that Japanese Prime Minister Shinzo Abe will hold a news conference after 1010 GMT, widely expected to announce a snap election and delay a hike in sales tax to help a moribund Japanese economy. Some dealers said that after a shockingly poor set of GDP numbers on Monday, there was speculation in the market that Abe could announce plans for additional government stimulus ahead of the election.
Either way, the Bank of Japan is expected to have to print more yen in a bid to revive an economy which has struggled to grow for more than a decade.
"The yen is the only game in town really," said Graham Davidson, a spot currency trader with National Australia Bank in London. "It looks like there are a lot of dollars to be bought by the Japanese domestic investor community and that should keep any dips for the dollar (against the yen) pretty shallow."
The dollar was a touch higher on the day at 116.72 yen , within sight of its seven-year peak of 117.06 yen touched on the EBS trading platform on Monday after Japan's poor gross domestic product data.
The Japanese economy contracted by an annualised 1.6 percent in the third quarter, quashing expectations of a rebound after plunging 7.3 percent in the second quarter.
"We need to focus on the possible supplementary budget and not just the delay of the sales tax increase," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
European Central Bank policymakers have also reiterated their intention to take further steps if a similar picture of divergence with the improving US economy continues.
That helped knock the euro back on Monday but it had recovered around a third of a percent to $1.2494 on Tuesday.
"I think the market is short euros but not heavily so," NAB's Davidson said. "All of the news is priced into it and we will really need to see further poor data out of Europe or strong data from the US to move it on."
He said the ZEW numbers out of Germany, due at 1000 GMT, might prod the euro lower, but pointed to purchasing manager surveys later this week as a more likely market mover.
US producer price numbers are also due on Tuesday ahead of minutes on Wednesday from the Federal Reserve's latest meeting.
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