By Tom Finn
LONDON (Reuters) - The Japanese yen rose on Tuesday, benefiting from a U.S. dollar hit by concern over the U.S. 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 percent to $1.1348 (EUR=EBS).
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 U.S. currency, measured against a basket of rivals, has weakened 1.3 percent in the last 10 days. On Tuesday, it fell 0.2 percent to 96.415 <.DXY.>
The Australian dollar has gained the most from the U.S. dollar's retreat. The New Zealand
"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
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.