Euro rallies in London

The euro hit a four-week high against the dollar and a two-month peak versus the Swiss franc on Tuesday on growing expectations that the European Central Bank could signal a faster pace of interest rate increases.
The yen remained near the previous day's record low against the euro with Japanese government officials reasserting their view that interest rates should be kept at zero for now.
Although most investors still expect a hike at the Bank of Japan's meeting next week, analysts say such a move is already priced in and thus would offer limited scope for yen upside, while there is potential for a sell-off if there is no move.
A survey on Monday showed the eurozone's manufacturing sector expanded in June at its fastest pace in six years, while comparable US data showed slowing growth in the same month.
The European Central Bank holds a rate-setting meeting on Thursday. "Since yesterday the euro is relatively well bid across all the currencies. People are positioning for a hawkish ECB on Thursday," said Adarsh Sinha, currency strategist at Barclays Capital.
The euro hit the four-week high of $1.2823 before trimming gains to $1.2796 by 1320 GMT, steady on the day. The euro also hit a two-month high against the Swiss currency at 1.5690 francs. Against the yen, the euro was broadly steady at 146.69, having hit the record high of 147.04 on Monday.
"If you look at the euro/yen it's been the outperformer. It's all down to relative yields - there was uncertainty as the market hadn't known when the BOJ would start tightening, when the market continued to price in ECB rate hikes," said Steven Saywell, chief currency strategist at Citigroup. "But now that we had good tankan and Nikkei has rebounded, the BOJ will raise rates and the yen will probably tend to (rise)."
The dollar was a touch softer at 114.58 yen. Analysts said that comments from BOJ Governor Toshihiko Fukui on Monday that the question of raising rates was "completely open" had, if anything, cast a shadow of doubt over next week's hike.
"If the market is 100 percent betting on 25 basis points rate increase and he is indicating that options are open, he probably doesn't mean 50, but it raises the possibility that may be they don't do anything and may be they leave it another month," said Tony Norfield, head of FX research at ABN Amro.
On Tuesday, top Japanese government spokesman Shinzo Abe said he wanted to the BOJ to continue supporting the economy by keeping zero interest rates, adding that Prime Minister Junichiro Koizumi also agrees on the need for zero rates.
Economics Minister Kaoru Yosano said the necessary conditions for the central bank to bump up rates are falling into place, while Finance Minister Sadakazu Tanigaki said that rates should stay at zero to support the economy.