The euro regained its poise today as investors snapped up the oversold single currency and gained comfort from an improvement in German business confidence.
The yen fell sharply against the euro and edged nearer to an eight-month low versus the dollar as oil prices soared and after Beijing insisted it would not be browbeaten into revaluing its yuan currency peg.
This morning, the euro was up over half a per cent against the dollar at $1.2161 and gained 0.74 per cent versus the yen to 132.88, aided by traders covering short positions in the single currency after it hit a 10-month low below $1.20 last week.
German business confidence rose as expected in June for the first month in five as firms grew more optimistic about both current activity and the future, the Ifo institute said.
Munich-based Ifo said its business climate index, based on a monthly survey of 7,000 firms, rose to 93.3 in June from 92.9 in May, matching the consensus in a poll of economists last week.
The single currency was also helped by comments from Qatari central bank governor, who said during the weekend that the oil-rich nation was considering shifting some of its largely dollar-denominated currency reserves back to the euro given the single currency's fall this year.
Since mid-March the euro has tumbled 10 per cent against the dollar as investors fretted about Europe's poor growth prospects and the European Union's political upheaval.
But currency analysts said the single currency's bounce back may be short-lived as the interest rate differential between the euro zone and the US is set to widen.
The Federal Reserve is expected to raise rates by 25 basis points to 3.25 per cent at its policy meeting ending on Thursday.
On the other hand, ECB officials have repeated that they see current interest rate policy in the euro zone policy as appropriate. The ECB has held rates steady at 2.0 per cent for more than two years now.