LONDON, Dec 2: The euro enjoyed a strong bounce against the dollar on Tuesday after recent losses as the market adjusted positions ahead of an expected sharp cut in eurozone interest rates later this week.

In late London trade, the euro rose to $1.2728 from $1.2607 in New York on Monday.

The dollar firmed to 93.62 yen from 93.21 yen on Monday.

Dealers said the market was unsettled earlier in the day by news that the Chinese yuan had fallen sharply against the dollar, sparking suggestions Beijing was trying to give key exports a boost in the face of a slowing economy.

They said there were concerns that such a Chinese move might encourage competitive devaluations as governments elsewhere tried to bolster exports and their economies in the face of a looming global recession.

That outcome would only add to the risk of falling prices or deflation, which tends to dampen economic activity as consumers put off purchases to wait for cheaper goods in the future.

At the same time, dealers noted that continued risk aversion provides support for the dollar which in previous recessions has always done well as investors seek its traditional safety.

“Weighing on the euro and the pound are upcoming interest rate decisions. Both the ECB and (Bank of England) are expected to cut rates vigorously on Thursday,” Commerzbank analysts wrote in a client note.

—AFP