Is the euro finally on a roll?

Further solid gains for the euro have added to the 1% rally seen yesterday.

This morning, the single currency touched highs around $0.8565, before opening in New York at $0.8555. The impetus behind the euro's rally is the market's sense that the U.S. economy is slowing and the balance of financial flows around the world may start to edge more in the favor of Europe.

The threat of further intervention has also played a role. Yesterday's comments by

Bundesbank

president Ernst Welteke, indicating that further central bank intervention was still possible, helped to underpin the euro. Equally important was weaker-than-expected U.S. data which suggested a slowing economy. The

Consumer Confidence Index

(

definition |

chart |

source

fell to its lowest level since October 1999.

However some traders remain doubtful that the euro can keep on going. "I'm not convinced by this move," said Neil Parker of

Royal Bank of Scotland Markets

. "We've seen these moves before and they don't follow through," he commented.

The dollar has also slipped back vs. the Japanese yen and is now trading around 108.50, half-a-yen down from yesterday's close at 109.05. Traders do not expect the 110 yen/dollar level to be broken in the coming days and are cutting long dollar positions. "We've tried to break the upside so many times -- I think we'll fail again," said Parker.

The euro remains fundamentally weak vs. the yen but managed to move 0.5% above overnight lows, at 92.80.

Sterling is lower at $1.4480 as new surveys point to softening economic activity. The latest

Confederation of British Industry

survey showed retail sales flat for the first month since January.

While the euro is making progress vs. the dollar, it is also gaining on a range of crosses with other currencies. Against the pound, the euro has gained 1% to open at 59.10 pence.

Dollar/Swiss is continuing to weaken and is opening solidly lower at SF1.7845. In Swiss franc terms, the euro has edged higher, to SF1.5280.

The Canadian dollar has held its better levels of yesterday afternoon, around C$1.5240, but hasn't been able to make further gains. The currency is expected to see better days now that month-end demand for U.S. dollars is out of the way.

The Australian dollar is still unable to pull away from its series of record lows. It opened a little firmer, at $0.5240, 2% above the low seen on Tuesday, but without any real indication that a real up move is underway.

The New Zealand dollar opened unchanged, at $0.3990,

The softer dollar has given a boost to emerging markets currencies. The Polish zloty is firmer around 4.62/dollar as traders continue to expect further interest rate increases in the near term. The South African rand is at its best levels for two-weeks at 7.50/dollar, from 7.54 yesterday.