The euro dipped on Wednesday as investors waited to see if the European Central Bank would respond to the currency's recent jump which threatens to delay any regional economic recovery.
The Japanese yen, at the centre of concerns that some countries are trying to devalue their currencies to boost growth, regained some ground having fallen close to a three-year low on expectations a new Bank of Japan governor will ease policy aggressively once in office.
The ECB is widely expected to keep rates at a record low 0.75 percent when it meets on Thursday, but focus will be on whether policymakers are worried about the euro's 6.5 percent rise in the last two months.
"Euro-dollar looks quite comfortable to the low to mid 1.35's and I think that is where we will stay ahead of tomorrow's ECB meeting," said National Australia Bank strategist Gavin Friend.
"When you look at the big fall in the yen, it just interests me whether they (ECB) see that as a disorderly move. It is raising eyebrows around the world and the euro's rise is part of that."
Against the dollar, the euro dipped to $1.3532 but was well within this week's range of $1.3450 - $1.3710.
The dollar touched 94.075 yen, its highest since May 2010 before profit taking saw it drop back to 93.76 yen, while the euro also rose as high as 127.71 yen, its strongest since April 2010, before it also eased.
BOJ Governor Masaaki Shirakawa has said he will step down on March 19, opening the way for a successor supporting the kind of expansionary policies the government favors.
Global policymakers meet in Moscow next week. New Japanese Prime Minister Shinzo Abe's support for aggressive easing does not seem to have caused an outcry from other countries although there have been sporadic complaints from Germany and South Korea.
According to a Japanese government official, the IMF's number two David Lipton said the BOJ has taken the right direction in committing to a 2 percent inflation goal and its next governor now needs to show how that goal will be achieved.
European stocks were up 0.2 percent at 7 a.m. ESTas an upbeat outlook for the year from the world's largest miner ArcelorMittal (ISPA.AS) added to confidence among economists that the global economy is picking up.
German industrial figures also showed a 0.8 percent month-on-month rise in orders in December and the economy ministry said it showed the weakness in the sector was coming to an end.
London's FTSE 100 .FTSE was up 0.5 percent and U.S. stock futures pointed to small gains on Wall Street when trading resumes.
In contrast Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI were down 0.6 percent and 0.2 percent respectively but earlier rises in Asia led by Japan, left the MSCI world share index .MIWD00000PUS hovering just below a 22-month high.
The slide in the yen pushed Japanese equities to their highest since October 2008 while expectations of more monetary easing pushed two-year Japanese government bond yields down to a nine-year low of 0.045 percent.
The growing confidence in the global economic outlook also supported oil prices and gave a boost to copper and a wide range of precious metals on Wednesday.
Brent crude, which hit a 20-week high on Tuesday, was trading around $116.30 a barrel down slightly on the day, but some analysts expect it to test $120 a barrel this month if there are no supply shocks.
"The markets are now more optimistic about the world economy, so oil prices are heading up, but gradually," said Ken Hasegawa, a commodity sales manager at Newedge Group.
Platinum rose to $1,715.25 an ounce, its highest price in four months, while palladium stood at $760.88 an ounce, near its best level since September 2011.
Investors will be looking out for China's trade numbers due on Friday for more clues on the health of the global economy.
Gold slipped $2.04 an ounce to $1,670.56, a drop partially triggered by an announcement from India, the world's biggest consumer of the precious metal, that the central bank is considering restrictions on imports by banks.
In the European bond market, benchmark German Bund futures remained slightly higher after Germany saw strong demand at a sale of five-year German debt due to a recent rise in yields and political uncertainty in Spain and Italy.
Corruption allegations in Spain have put Prime Minister Mariano Rajoy under pressure and a scandal at one of its oldest banks has led to an increasingly uncertain outcome in Italian elections later in February.
"There are fairly ominous signs (in the periphery). I know they (Italian and Spanish bonds) had a good day yesterday, but there's Spanish supply coming up," one trader said.
Financial and corporate credit spreads were modestly tighter given the better tone in the equity markets and German government bond prices.
The spread on the main iTraxx five-year index - which measures the credit risk premium of a basket of high quality European bonds - narrowed by around 2.0 percent.
The index touched its highest level for the year on Monday in the selloff which hit all risk asset markets when growing political uncertainty in Spain and Italy rattled investors.
Source: Reuters | (Editing by Anna Willard)