The U.S. dollar continued its weakening trend this morning falling to fresh 4-week lows against the euro. Additionally, higher-yielding currencies rebounded from steep losses in the previous session as investors concluded China's surprise monetary tightening would not derail its growth.
Chief executives of Wall Street's biggest firms are also scheduled to testify before Congress about the financial crisis and the Federal Reserve will release its survey of economic conditions, known as the Beige Book, later in the session.
The euro continues to benefit from the dollars weakening trend. The euro recovered from a slide early in the European session after data showed the German economy contracted by more than expected in 2009.
The ECB will announce its latest policy decision on Thursday. It is expected to keep euro zone interest rates on hold at a record low and signal that it remains in a neutral gear as it waits for the region's economy to firm up.
The Japanese yen fell broadly, paring gains made on Tuesday after China's central bank raised banks' required reserves ratio - a move which prompted investors to unwind yen-selling positions.
Sterling firmed to a one-month high after Bank of England policymaker Andrew Sentance said in a newspaper interview that the central bank was close to holding back on stimulus. The pound was also boosted after UK industrial production data came in stronger than expected. British industrial output rose 0.4% month-on-month in November, slightly faster than expected, with a jump in oil and gas extraction outweighing a weaker-than-expected manufacturing performance, official data showed.
The Canadian dollar edged higher against the USD as risk appetite firmed and commodity currencies recovered after weakening on China's signal of tighter monetary policy.
Commodity-linked currencies such as the Australian dollar regained ground, but the market remained nervous that the withdrawal of liquidity as economies recover and central banks focus on inflation risks could prompt investors to unwind positions in perceived riskier assets.
