The euro traded at six week highs of $1.3956 versus the dollar yesterday, with risk sentiment continuing to be underpinned by hopes of a comprehensive debt deal from Europe by Wednesday’s Summit. It eased off its highs overnight but remains reasonably well supported as markets await further details from EU leaders. The news of a weaker than expected eurozone flash PMI report for October did not seem to have a major impact on the single currency, though the data have intensified fears that the region is heading back into recession, indeed if it is not already there. However, markets may take some comfort in the fact that German consumer confidence data released overnight showed a modest improvement in morale over the past month.

The euro’s recent rise has weighed on the dollar, which is also coming under pressure versus other currencies given the current improvement in risk appetite. As well as hopes for a deal in Europe, sentiment has also been boosted by the fact that numbers from the US have been reasonably good of late, helping to ease fears of a double dip recession. Markets will be looking to today’s US consumer confidence report for further direction. Record lows versus the yen late last week are keeping markets on guard, with Japan’s Finance Minister repeating his warning that he was ready to take firm steps if the currency’s appreciation becomes excessive.