The euro rallied to a four-year high against the yen, and a near one-month high against the dollar in early trading today, with investors testing the upside ahead of the US Thanksgiving holiday this week. The euro hit a peak of 138.16 yen, the first time it had broken above 138.00 yen since October 2009.
The single currency was further boosted by a rise in short term market rates, with the amount of extra money in the financial system falling to its lowest level for more than two years.
However, trading has been pretty quiet in the absence of any market-moving data events and the oncoming US holiday. None of the data released yesterday changed investor perceptions of the likelihood of Fed tapering in the near term.
In the absence of any top-tier data releases, investors have cast their eyes towards the situation unfolding between the US and China, in which two unarmed U.S. B-52 bombers on a training mission flew over disputed islands in the East China Sea without first informing Beijing. Although currencies have so far been unmoved by the situation, any escalation in tensions could have the potential to move currency pairs, particularly in the absence of any other stimulus.
Meanwhile, the dollar fell to 80.534 against a basket of major currencies after a day of mixed news on the economic front. Consumer confidence was down, but permits for future home construction rose to a near 5 1/2 year high. The most important news in the weeks to come will be the nonfarm payroll report for November, which will be released on December 6th.