UPDATE: Euro, Pound Rebound Continues; Pound Back Above $1.40

UPDATE:=Euro, Pound Rebound Continues; Pound Back Above $1.40

(Update with added data, fresh prices, and analyst quote)

    By Riva Froymovich    Of DOW JONES NEWSWIRES  

NEW YORK (Dow Jones)--The recovery in the euro and pound versus the dollar sustained into Tuesday with better than expected euro zone data.

Both European currencies fell sharply last week when mounting economic and banking sector concerns fueled a flight to safety into the dollar. However, a bounce in risk appetite Monday with buoyant equities reversed that sharp selloff.

"Markets are currently driven by a mixture of currency positive elements including Japan and Australia widening its stimulus plans, rebounding commodity prices, improved sentiment on the state of banks after the release of [expected earnings results] Barclays, a stronger than expected Ifo indicator...," said analysts at BNP Paribas.

"Against this background some further equity market gains should be expected, convincing us to buy euro versus dollar," they said.

Overnight Tuesday, the euro rose to its highest level in one week, $1.3330, while the pound did the same and advanced back above $1.40. Last Friday, the pound fell to $1.3502, its lowest level in more than 23 years.

Analysts at Brown Brothers Harriman in New York add that the euro and pound are "oversold on a short term basis and momentum traders are likely to use [Tuesday] morning's pullback as another buying opportunity."

Tuesday morning in New York, the euro was at $1.3218 from $1.3168 late Monday, while the dollar was at Y89.20 from Y89.03, according to EBS. The euro was at Y117.89 from Y117.28, and the U.K. pound was at $1.4075 from $1.3966. The dollar was at CHF1.1383 from CHF1.1366 late Monday.

The closely watched Ifo German business confidence index released overnight slightly rebounded in January to the surprise of economist forecasts. Still, just above record lows, officials at the research institute cautioned against calling a recovery.

Also, sales volumes at U.K. retailers recovered slightly in January. However, they are expected to weaken again in the months ahead as the recession throttles consumer demand, a survey by the Confederation of British Industry showed Tuesday.

Riskier currencies also found support from the minutes of the last Bank of Japan meeting. Although the minutes indicated little chance of further easing, they showed the BOJ is considering further measures to support corporate borrowing.

In the U.S., the January Richmond Fed Manufacturing Index will be released at 10 a.m., EST, at the same time as the January Conference Board Consumer Confidence Index.

Currency analysts say the lifetime of this latest revival of risk appetite depends on the outcome of the Federal Open Market Committee meeting on Wednesday.

     Canada Morning  

The Canadian dollar retreated somewhat Tuesday morning in cautious trading ahead of the federal budget for the 2009-10 fiscal year later in the session.

The U.S. dollar was trading at C$1.2287 from C$1.2237 late Monday.

The budget is expected to include a C$64 billion deficit over the next two fiscal years, the first in 13 years, and extensive fiscal stimulus intended to help counter the intensifying recession.

With the budget looming, profit taking against earlier strength may take the Canadian dollar a little lower in the short term before the underlying trend higher resumes, said a report from Shaun Osborne, chief currency strategist at TD Securities in Toronto.

-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; [email protected]

(Don Curren in Toronto contributed to this report.)

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(END) Dow Jones Newswires

January 27, 2009 09:37 ET (14:37 GMT)

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