Previous session overview

The dollar and the euro shot up against the yen in Asia on Tuesday as a surprise announcement by the Bank of Japan that it will hold an unscheduled policy board meeting in the afternoon led players to speculate that monetary easing steps may be in the works.

Possible easing measures may include expanding programs to help companies raise funds, increasing buying of treasury discount bills, or outright government bond purchases, dealers said.

As of 0450 GMT, the dollar stood at JPY87.35, up from JPY86.45 in New York overnight, and the euro was at JPY131.10 from JPY129.80.

Earlier in the day, the greenback gained one yen and the euro spiked up one-and-a-half yen in the wake of the BOJ's announcement.

The Japanese government, which is combating deflation, has been putting pressure on the central bank to adopt measures to support the economy and cooperate with government policy to stave off deflation.

The euro didn't show much of a response to news from Eurostat, which indicated that the Euro-zone's consumer price index (CPI) rose 0.6 percent in November from a year ago, marking the first increase in seven months. The data suggests that the region may end the year with mildly positive inflation growth, though it will be well below the European Central Bank's 2 percent target. Credit Suisse overnight index swap (OIS) rates didn't show a sharp response either, though they did shift slightly to price in 85.4 basis points worth of hikes by the ECB over the next 12 months, compared to 84.1 basis points on Friday.

The Pound was under pressure in Europe giving up most of the gains from the open in Asia as Data was weak and markets focused on weak UK banks. November Consumer Confidence at -17 vs. -13 previously. Temporary Support was found at USD1.6400.

The Australian dollar fell and bonds rallied on Tuesday as dealers took the opportunity to clear out positions after Australia's central bank tightened policy for the third consecutive month but gave little away on the next move for rates.

Market expectationEURUSD pulled higher by cable's react to positive housing data, clears above USD1.5000 and able to build, the rate pushing to USD1.5033 and currently holding gains. Next band of resistance seen placed from above USD1.5040 through to USD1.5050. Further resistance noted at USD1.5060 ahead of USD1.5080/85.

Pound corrective pullback from extended rally highs of USD1.6478 finds support ahead of USD1.6450. Bids were reported here earlier, a break to allow for a deeper move toward USD1.6425/20. Offers remain in place to USD1.6480, more toward USD1.6500.

USDJPY traders reporting good interest to pick up dollar-yen on dips, with the market said to be sitting long in anticipation of the delayed press conference from the BOJ, now scheduled for 0800GMT. Rate recovers back above JPY87.00 at writing, with offers eyed into the JPY87.50/55 area, while techs see the 38.2% retrace of the October-November sell-off coming in at JPY87.70.

European stocks are expected to open higher Tuesday, following upbeat sessions in the U.S. and Asia, as fears over Dubai World abate after the company said it is in talks with banks to restructure USD26 billion of debt.

Investors will focus on any surprise cut to the BOJ's key policy rate from the current 0.10%, although this is very unlikely, dealers said.

A rate cut, if announced, may push the dollar above JPY89, whereas if the announcement turns out to be in line with investors' expectations for easing steps, the dollar may resume falling against the yen, said abnalysts.

Investors will be watching for key economic data this week, including the release Tuesday of euro-zone manufacturing data and Friday's U.S. non-farm payrolls, to gauge whether the world economy remains on the road to recovery before bidding up currencies such as the euro and Australian dollar.