The euro pushed higher in late morning trade today as better than expected unemployment results and strong inflation data buoyed the pair to within a… … whisker of the 1.2200 level.

Eurozone unemployment rate slipped unexpectedly to 8.2% from
8.3% projected indicating that the export led recovery in the 12 member union is
beginning to exert a positive influence on the labor markets of the region.
Additionally, Producer Prices increased in line with expectations rising 0.5% or
5.4% on year over year basis which was the biggest jump since 2000. The inflation
data confirmed speculation of further ECB rate hikes with traders now expecting the
central bank to increase rates by 25bp in its May meeting.

As many analysts have pointed out, yesterday Eurozone manufacturing exceeded US
manufacturing readings for the first time in 5 1/2 years and if this combination of
negative surprises out of the US along with positive results from the EZ continues
into the end of the week the pair may challenge the upper bound of its 1.2250
-1.1850 recent range.

USD/JPY on the other hand saw much more muted action with yen experiencing initial
strength on the back of comments by a senior Chinese parliamentary official that
China should gradually reduce its holdings of USD denominated debt. A report in Wen
Wei Po a Beijing backed Honk Kong newspaper made those comments public at the start
of Asian trade which caused selling in USD/JPY to accelerate as traders speculated
that China may curb its future purchases of US Treasuries. The nation has been
accumulating foreign reserves at a rate of $50 Billion per quarter and has become
the second largest holder of US assets in the world. Later in the day however PBOC
distanced itself from the statement by Cheng Siwei by noting that his words
expressed his own academic view rather than a material change in the Central Bank's
FX management policy. As a result the USD/JPY stabilized near the levels of
yesterday's New York close with carry demand still supporting the pair.