By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The dollar edged lower Wednesday while the euro stabilized, as equity markets followed through on a rebound by Wall Street late in the previous session.
The dollar index (DXY 86.85, +0.07, +0.08%) , which tracks the U.S. unit against a basket of six major currencies, slipped to 86.660, down from 86.799 in late North American trading on Tuesday.
The euro (CUR_EURUSD 1.2271, -0.0100, -0.8083%) traded at $1.2320, edging up slightly from $1.2308 late Tuesday. The single currency rose also rose to 111.22 Japanese yen (CUR_EURYEN 111.3700, -1.7700, -1.5644%) up from around 111.14 yen late Tuesday.
The British pound (CUR_GBPUSD 1.4376, -0.0063, -0.4363%) slipped 0.1% to $1.4399.
"There is no significant driver," said strategists at Brown Brothers Harriman of Wednesday's action in the foreign-exchange market. "The tone is less tense than it has been in recent days, but there still does not appear to be closure and calm seems fragile."
The euro may be in for some near-term consolidation, however, as downside momentum appears to have stalled and short positions in the shared currency may prove vulnerable, they wrote.
It would take a move through resistance in the $1.235 to $1.24 area to turn the consolidation into a full-fledged correction, Brown Brothers Harriman said, adding that this would signal a move toward $1.26.
Meanwhile, auctions of government debt across the euro zone produced mixed results Wednesday.
Most notably, the sale of €7 billion ($8.6 billion) of German five-year notes failed to attract full demand. In the end, the government retained €1.1 billion of supply producing an official bid-to-cover ratio of 1.1 to 1.
Historically low yields in the wake of safe-haven flows into German debt amid the euro zone's crisis over sovereign debt left the notes expensive, analysts said.
Auctions elsewhere went somewhat better, strategists said, with Portugal and Italy attracting moderate coverage for their own sales of government debt.
Against the Japanese currency, the dollar (CUR_USDYEN 90.1800, -0.1100, -0.1218%) traded at 90.33 yen, compared with 90.13 yen late Tuesday.
Along with the latest out of Europe, currency traders continue to keep an eye on developments on the Korean peninsula. Risk appetite took a hit Tuesday as tensions rose between South Korea and North Korea, which late Tuesday severed all ties with its neighbor. Read the latest on the Korean situation.
"Investors continue to follow the situation closely, but the consensus view is that the worst of the crisis may have passed avoiding military action which was a welcome sign of relief for global capital markets," said Boris Schlossberg, director of currency research at GFT.
