By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar turned up against the euro on Wednesday, but maintained losses against the British pound after minutes of the Bank of England's latest policy meeting dispelled worries that the central bank may be considering further easing measures.
The dollar index (DXY 82.17, -0.06, -0.07%) , a measure of the performance of the greenback against a basket of major currencies, stood at 82.266, up from 82.221 late Tuesday in North American trading.
The pound (GBPUSD 1.5615, +0.0036, +0.2311%) rose to $1.5594, up from $1.5566 late Tuesday. It rose as high as $1.5687 after the release of minutes of the Bank of England's Aug. 4-5 policy meeting.
The euro lost 0.3% against the pound.
Versus the dollar, the shared currency (EURUSD 1.2871, -0.0008, -0.0621%) fell to $1.2857, compared with $1.2887 on Tuesday.
Against the Japanese yen, the dollar (USDYEN 85.2900, -0.2600, -0.3039%) slipped to ¥85.31, down from ¥85.58. And one euro (EURYEN 109.8200, -0.3900, -0.3538%) bought ¥109.64, down from ¥110.28.
With no major euro-zone or U.S. economic releases on Wednesday, currency traders turned to stocks for direction, viewing equities as an indication of investors appetite for safer currencies -- usually the dollar and yen -- versus those deemed riskier, including the euro and pound.
The S&P 500 Index (SPX 1,093, +0.23, +0.02%) fell about 0.4%, after futures had pointed to a higher opening. Read about U.S. stocks.
Also, Treasury bond yields headed back toward the lowest levels seen since at least last April. See more on Treasury bond yields.
For the medium term, foreign-exchange analysts at Crédit Agricole expect the dollar to "have a generally strong performance against major currencies, with the notable exception of commodity currencies."
The firm remains bullish on the dollar against currencies typically used to fund carry trades, including the yen and Swiss franc, the analysts said in a research report Wednesday. In a carry trade, an investor will borrow in a relatively low yielding currency -- like the yen or franc -- to buy higher-yielding debt in countries with stronger currencies, with Australia and New Zealand being among the favorites.
They also expect the greenback to strengthen against European currencies, especially the euro, but said they have "revised the pace of expected euro depreciation," with the currency "increasingly susceptible to downside risks."
Bank of England
Minutes from the Bank of England's policy meeting confirmed that participants voted 8-1 to leave policy unchanged. Read about the Bank of England.
Market talk ahead of the minutes focused on the possibility of a three-way split, with some members calling for additional easing through the expansion of the Bank of England's asset-purchase program. Short-covering lifted the pound after the minutes showed no members voted for additional easing, analysts said.
Early foreign-exchange trading in London showed "a strong short-covering relief rally," said Boris Schlossberg, director of currency research at GFT.
The Bank of England's meeting minutes turned out to be "far less dovish than the market had feared," he told clients.
For the third consecutive month, Andrew Sentance cast the lone dissenting vote against the Bank of England maintaining monetary policy, arguing that the strength of the recovery and persistent above-target inflation warranted a hike of a quarter of a percentage point in the key lending rate, to 0.75%.
The policy makers also weighed arguments in favor of further easing, but in the end all but Sentance opted to leave rates and the size of the quantitative-easing program unchanged, saying they stood ready to move policy in either direction as warranted, according to the minutes.
Euro, stocks
The euro found support Tuesday after solid demand at auctions of 1.5 billion euros ($1.9 billion) in Irish government debt and Spanish Treasury bills, helping ease worries about sovereign debt in the periphery of the euro zone. Read about euro, Irish auction.
But the doubts haven't been fully dispelled, analysts said.
The euro's inability to hold above $1.2900 due to weakening stock markets overnight supports the theory that structural worries remain, said Ulrich Leuchtmann, currency strategist at Commerzbank in Frankfurt.
Only rising risk appetite among investors is providing support for the European single currency, Leuchtmann wrote in a research note.
With spreads on Greek credit-default swaps still hovering around eight percentage points, it's clear the market doesn't believe the €110 billion aid package earmarked for Greece will work, though sovereign concerns probably won't be in focus over the next few days or weeks, he told clients.
