LONDON (Dow Jones)--The euro remains well supported by the running themes of expected interest rate increases by the European Central Bank and reserve diversification away from the dollar, both of which are keeping the single currency propped up.
The pound too has been in focus, and continues to hold within a tight range after falling when U.K. data released Tuesday revealed that inflation had eased back slightly.
"Risk tolerance has had the odd wobble but remains pretty high and that is inexorably linked with the interest rate view which is keeping the euro well bid," said Neil Mellor, a strategist at Bank of New York Mellon.
But the recent gains made by the euro and a host of other currencies perceived as riskier, including the Australian and New Zealand dollars, have been driven by ample liquidity which could mean that the chances of reversal in fortunes may be at hand, he added.
"There may be excessive risk taking but just when that will be reversed is hard to tell," he said.
Analysts at BNP Paribas noted that European data are taking a back seat as likely softer U.S. growth and the implications for Fed policy take center stage.
"While the International Monetary Fund warned against too-fast rate increases from the ECB, the U.S. outlook continues to support the euro, both directly and as a consequence of euro buying by reserve managers," they said in a note to clients.
Separately, the IMF called for greater action on the U.S. budget deficit, which puts the spotlight on president Barack Obama's speech scheduled for 1735 GMT.
That aside, markets are also looking to the meeting of the Group of 20 industrial and developing nations this Thursday and Friday for some steer on where the Chinese yuan may be headed, especially as the debate on addressing global imbalances intensifies.
The pound is stuck in a narrow range at lower levels against the euro and dollar, having dropped back when data Tuesday revealed a surprising fall in the rate of annual inflation. It fell against the euro and dollar as traders scaled back U.K. rate increase expectations.
Data out Wednesday showed a stronger than expected labor market but that got little attention.
"Sterling joins the underperformers, dipping lower on employment data though the details were encouraging. After yesterday's CPI data, markets have moved from pricing a 50% chance of a May BOE hike, to a 25% chance," Elsa Lignos, strategist at RBC Capital markets said in a note to clients.
Meanwhile, markets continue to cast a wary eye on the nuclear crisis in Japan after incident level at the Fukushima Daiichi nuclear power plant was raised to 7, putting it on a par with the 1986 Chernobyl disaster in the former Soviet Union. But with little fresh news, the yen is stuck around Y84 against the dollar.