The Japanese yen rose on Tuesday, benefiting from a US dollar hit by concern over the US economy and expectations that the Federal Reserve will prove accommodative at a meeting this week. The euro also profited from the weaker dollar, adding 0.2 per cent to $1.1348.

Markets expect the Fed to strike a dovish tone when it meets this week, and bets on an interest rate cut have increased after weaker-than-expected manufacturing data on Friday.

The US currency, measured against a basket of rivals, has weakened 1.3 per cent in the last 10 days. On Tuesday, it fell 0.2 per cent to 96.415 The Australian dollar has gained the most from the US dollar's retreat. The New Zealand and Canadian dollar are also performing well.

“Assuming Washington does not turn more aggressive on trade in the near future, expect this more benign environment to continue and to allow local stories to win through,” ING analysts said. Volatility in foreign exchange markets is at its lowest in five years and analysts say recent decisions by the Fed and other major central banks is contributing.

Sterling also gained, rising almost a fifth of a percent to $1.3280. It had fallen overnight after the speaker of Britain's parliament upended Prime Minister Theresa May's Brexit plans by ruling that she had to change her twice-defeated deal before offering it for a third vote.

The Bank of England is expected to leave its interest rate outlook unchanged at a policy meeting on Thursday because of the uncertainty over Britain's decision to leave the European Union.

Focus on Tuesday was also on Germany's ZEW economic index for March, due around 1000 GMT. The German economy, Europe's largest, barely avoided recession in the fourth quarter, as global trade disputes and Brexit curtailed a decade of expansion.

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