The dollar hit a one-week high against the yen on Tuesday after Chinese growth data came in better than many had feared, curbing demand for the safe-haven Japanese currency. The greenback rose 1 percent to a one-week high of 118.775 . Forecasts from the IMF showing that the United States was on a different growth trajectory to most other major economies also bolstered sentiment towards the dollar, while some talk that the Bank of Japan could ease policy added to pressure on the yen.
The euro was under pressure despite a survey showing a surge in German analyst and investor sentiment this month as investors focused on a possible announcement of a money-printing programme by the European Central Bank on Thursday. The euro's weakness pushed the Danish crown back towards recent 2-1/2 year highs. On Monday, Denmark cut interest rates deeper into negative territory, but investors expect it to reduce rates again if the ECB announces a quantitative easing (QE) programme this week.
Talk that the crown's long-standing peg to the euro may be threatened has intensified since the Swiss suddenly abandoned their franc cap last week, sending global shock waves. Under the peg, the crown can fluctuate by up to 2.25 percent around a central exchange rate of 7.46038. If the crown hits its upper limit, both the Danish National Bank and the European Central Bank are committed to buying euros to defend the band.
"The Danes will have to offset the impact from further ECB action by taking rates deeper into negative territory," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "That will be the path of least resistance for the Danish central bank." The euro was flat at 7.4350 crowns, easing from a high of 7.4370 struck immediately after the Danish central bank cut interest rates to -0.20 percent on Monday.
Against the dollar, the euro was 0.2 percent lower at $1.1575, having struck an 11-year low of $1.14595 on Friday. Greece's election on Sunday, with the anti-bailout party Syriza leading in the polls, added to pressure on the euro. The Bank of Japan began a regular two-day policy meeting on Tuesday. "Yen selling ahead of a policy announcement is notably higher today, perhaps on rising expectations of some form of additional monetary easing by the BOJ tomorrow," said Derek Halpenny, European head of global market research at Bank of Tokyo Mitsubishi, London.