Europe's share markets firmed and the common currency slipped on Tuesday as a sharp fall in euro zone inflation and rising unemployment bolstered expectations of an interest rate cut by the European Central Bank this week.
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However, the euro's falls against the dollar were capped by rising speculation that soft U.S. economic data may persuade the Federal Reserve, which starts a two-day policy meeting later in the day, to stick with its aggressive stimulus plan for longer.
Annual inflation across the euro zone dropped to a three-year low of 1.2 percent in April, while separate data showed joblessness hit a record 12.1 percent in March.
"I'd be very surprised if they (the ECB) didn't cut rates. I don't know how bad it has to get before they actually take action," said Richard Driver, a currency market analyst for Caxton FX.
"There's plenty of debate over how much good a rate cut would actually do, but to be honest, with inflation so weak as we've seen this morning, it's worth a try," he said.
The euro was down 0.2 percent against the dollar at $1.3070 while against a basket of six major currencies, the greenback was hovering near a two-week low around 82.
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A cut in the ECB benchmark rate by 25 basis points to a record low of 0.5 percent after its policy meeting on Thursday has been largely factored in by financial markets, though many analysts and dealers still harbour some doubts it will happen.
Only a narrow majority of 76 economists polled by Reuters last week forecast a 25 basis point cut in the main rate to 0.5 percent on Thursday. A separate survey of money market dealers showed they were evenly split on any move.
However, yields of safe-haven German bonds and those of riskier peripheral euro zone nations such as Italy and Spain fell as the latest data reinforced the rate cut speculation.
The main German bond futures contract was 17 ticks higher at 146.83, closing in on a record high of 146.89.
Italian and Spanish government debt yields hit their lowest levels since 2010, extending a bond rally started on Monday after Italy clinched a new government and ended two months of political deadlock.
With the Fed and the Bank of Japan already embarked on massive stimulus efforts, global equity investors have ignored signs of weakening economic growth to push prices higher.
The widely tracked S&P 500 index on Wall Street closed at a record high on Monday, followed by a sharp 1.1 percent jump in MSCI's broadest index of Asia-Pacific shares outside Japan to a seven month high.
The pan-European FTSEurofirst 300 index was up around 0.1 percent in morning trade on Tuesday, taking its April rise to 1.3 percent and putting it on course for an 11th straight monthly gain,
London's FTSE 100, which has added nearly 10 percent this year, was little changed while Paris's CAC-40 fell 0.3 percent and Frankfurt's DAX rose 0.5 percent.
MSCI's world equity index was up 0.2 percent overall at 367.96 points and back at levels last seen in June 2008 before the full force of the financial crisis struck.
In the commodity markets the growth concerns heightened by the recent run of weak economic data around the world were largely outweighing the hopes of further central bank support.
Brent crude dropped 26 cents to $103.55 a barrel and has fallen 5.9 percent in April. U.S. crude was 1 cent lower at $94.49 a barrel and on track to end the month down nearly 3 percent.
London copper dipped 0.4 percent to around $7,125 a tonne but faces its biggest monthly loss in six months in April.
Gold fell 0.2 percent to $1,472.26 as outflows from exchange-traded funds added to concerns over the future demand for the precious metal as investors are tempted into equities.
"I think we are going back to that environment where investors struggle to see reasons to purchase gold and the physical market is slowing down as prices are rallying," BofA Merrill Lynch analyst Michael Widmer said.