The dollar pared a decline against the euro and gained ground versus other major currencies on Tuesday, as traders awaited the kickoff of a two-day meeting of U.S. Federal Reserve policy makers and Thursday’s policy meetings at the European Central Bank and Bank of England.
The ICE dollar index DXY -0.20% , which measures the greenback against a basket of six currencies, traded at 82.820, down from 82.829 in late North American trading on Monday.
Heat rises on Fed, ECB
The U.S. Federal Reserve and European Central Bank face critical tests this week amid heightened expectations that they are moving toward new actions to tackle fragility in the global economy. Photo: Getty Images
The euro EURUSD +0.38% traded at $1.2277, after topping $1.23 and compared to $1.2256 Monday.
The British pound GBPUSD -0.31% fetched $1.5630, down from $1.5704 on Monday.
Against the Japanese currencyUSDJPY -0.07% , the dollar bought 78.23 yen, from ¥78.19 Monday.
The European Central Bank and the Bank of England will both meet on Thursday to decide on interest rates.
Currency traders are most focused on the ECB and whether it announces it will restart a sovereign bond purchase program, hold another long-term unlimited lending operation or lower interest rates.
Last week, ECB President Mario Draghi stirred expectations for a major policy announcement by stating that the central bank will do what it takes within its mandate to save the region from disintegration.
The euro came off its highs after an unnamed Bundesbank official told CNBC that Germany’s central bank wants monetary policy in the euro zone to remain strictly focused on price stability, while members having fiscal problems should utilize fiscal instruments, such as the European Financial Stability Facility, to address them.“Investors will be looking for the central bank and Europe in general to deliver on their promise to do everything to save the euro,” said Kathy Lien, managing director at BK Asset Management. “If the ECB disappoints, the euro-dollar could come under fresh selling pressure.”
That led analysts to believe the “ECB is not going to be unveiling big measures this week,” said Christopher Vecchio, a currency analyst at DailyFX.
Separately, the U.S. Federal Reserve starts its two-day interest-rate meeting during the session.
Many analysts don’t expect the Fed to announce a third round of quantitative easing, opting to hold off until September to see whether economic data continues to weaken.
The Fed could, however, change its policy statement to extend the period of low rates beyond 2014, or cut the interest rate the Fed pays banks for reserves held at the Fed to encourage lending.
Against the Australian dollar AUDUSD +0.14% , the U.S. unit fell. The aussie bought $1.0505, from $1.0498 in late trading in the previous session.
The WSJ dollar index XX:BUXX -0.19% , a recently launched gauge of the dollar’s performance against other heavily traded major currencies, traded at 71.77, compared with 71.81.
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