EU focus: Euro edges up from 3-week low but faces headwinds

The euro edged higher on Tuesday but faced headwinds in moving further away from a three-week low hit a day earlier when reports about ailing lender WestLB triggered another outbreak of worries on euro zone debt and banking problems.
Market players said the euro could slip back if upcoming U.S. data, including retail sales figures later in the day, paints an improving picture of the economy, which could push up U.S. interest rates further.
"The dollar is likely to be bought back more. Investors have come to think that the Fed will not extend its quantitative easing beyond June, and markets will try to bet on an eventual rate hike by the Fed for now," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

The finance ministers agreed that a permanent rescue mechanism to be set up from 2013 would total 500 billion euros, but there was no agreement over how to beef up its existing rescue fund.
While policymakers have said they will hammer out a deal by March, analysts noted that there are some political events that could shake investor confidence on the euro in coming days.
They said a German local election on Feb. 20 could make Berlin reluctant to dish out aid to indebted countries.
"The greenback may regain its footing over the next 24 hours of trading as the economic docket is expected to reinforce an improved outlook for future growth," said David Song, currency analyst at DailyFX. "As market participants expect retail sales to increase for the seventh consecutive month in January, the expansion in private sector activity is likely to reinforce an enhanced outlook for the world's largest economy as household spending remains one of the leading drivers of growth."
Against the yen, the dollar gained, edging close to a three-week high of Y83.68 set on Friday.
The Bank of Japan kept rates on hold at the end of its two-day policy meeting as widely expected.
The Australian dollar rose. It was helped by China's consumer price index that came in at 4.9%, below market expectations of 5.3%, though it was exactly the same as a whispered number that swirled through markets yesterday.