The US dollar is heading for its longest losing streak in a year and world stocks have been higher for a fifth straight day, ahead of US inflation data expected to show the furious surge in prices may finally be cresting.
Asian markets rose overnight and another dip in gas prices helped Europe's STOXX 600 move up 0.2 per cent, despite a modest lift in government bond market borrowing costs.
On Tuesday morning, traders were already digesting German business confidence data that showed ongoing recession angst . But the day's main event will be US inflation figures due at 1230 GMT, data that will feed into next week's Federal Reserve meeting.
Economists expect a slight decline in the headline inflation number to around 8 per cent year-on-year, while the core rate, which strips out the more volatile elements, is forecast to see the same 0.3 per cent month-on-month rise as in July.
"I would concentrate on the core month-on-month number for a surprise either higher or lower," Saxo bank's head of FX strategy, John Hardy, said, adding that Tuesday could be a key day for the dollar, following its recent mini slump.
"Everyone is priced for 75 basis points (as a rise in US interest rates next week), so it is more about if this is peak Fed, and what happens into year-end and next year."
A hefty drop in commodity prices over the past couple of months has helped cool some of the inflation worries that have forced major central banks to hike interest rates sharply this year.
European gas prices were down another 4.5 per cent at 181.80 euro per megawatt hour on Tuesday, taking their drop since late last month to 47 per cent.
Brent crude was up around 1 per cent, on course for its fourth day of gains. But at $94 a barrel, it is down 25 per cent since mid June and nearly a third from the $139 a barrel it peaked at shortly after Russia invaded Ukraine.
Interest rate futures imply a 90 per cent chance that the Federal Reserve will lift its benchmark interest rate by 75 basis points at next week's policy meeting - a position that is perhaps most vulnerable to a downside CPI surprise.
"A further cooling in inflation would support the case for a step down in the pace of policy tightening to a 50 basis points rate hike at the FOMC meeting next week," said Kristina Clifton, a senior economist at CBA.
"Nevertheless, an upside surprise to inflation will easily cement market expectations of another outsized 75 basis points rate hike."
Wall Street indexes were pointing to a fifth straight day of gains for the main S&P 500, Dow Jones Industrial and Nasdaq markets later.
MSCI's broadest index of Asia-Pacific shares ex-Japan overnight continued its bounceback from two-year lows. It rose 0.7 per cent, led by a 2.7 per cent jump for South Korea's KOSPI , while Japan's Nikkei put on 0.25 per cent.
Data there, though, was mixed. A 9 per cent year-on-year jump in Japanese wholesale prices points to pressure on corporate margins, yet a slowdown in gains for August holds out some hope of relief.
China's president, Xi Jinping, was preparing for a meeting with Russian President Vladimir Putin later in the week, while, in New Zealand, rate hikes that began a year ago were starting to bite, as August home prices showed a 6 per cent drop from a year before.
Back in the currency markets, the dollar index, which gauges the greenback against six major peers, was down 0.2 per cent in Europe at 108.101.
Tailwinds from last week's European Central Bank rate hike and the drop in gas prices helped the euro extend its bounce. It was above parity at $1.0142.
Even the battered Japanese yen got a breather at 142.34 per dollar. That was up from last week's 24-year low of 144.99 amid signs that some investors were now closing bets on a further slide in the currency.
US Treasury yields steadied after some lacklustre auctions. Selling was heaviest at the very long end on Monday, with the 30-year yield up about 6 bps to around 3.5 per cent.
Benchmark 10-year yields hovered at 3.3425 per cent in European trade. Germany's 10-year yield, the benchmark for the euro area, was up 2 bps at 1.67 per cent but below a peak of 1.79 per cent touched last week.
Before US inflation data is issued later today, supply will be the main driver for markets, said Antoine Bouvet, senior rates strategist at ING in London.
"There is a lot (of supply) to absorb and investors are understandably nervous about buying more bonds after a hawkish ECB meeting and more generally due elevated rates volatility," Bouvet added.