Jittery trade likely as politicians wrangle in the U.S. and Europe alike By William L. Watts and Lisa Twaronite, MarketWatch FRANKFURT (MarketWatch) — The dollar drifted lower Wednesday, weakening in quiet trading on investor hopes for resolution of the standoff over the U.S. government’s debt limit and with a crucial summit meeting aimed at soothing Europe’s sovereign-debt crisis in the offing. President Barack Obama on Tuesday cited “some progress” in talks with lawmakers about raising the U.S. debt limit, and praised a new plan from the so-called “Gang of Six” in the Senate that would cut $3.7 trillion from deficits over 10 years. Read more on Obama's comments on debt plan. Meanwhile, French President Nicolas Sarkozy is scheduled to meet with German Chancellor Angela Merkel in Berlin on Wednesday, ahead of the Thursday summit in Brussels. The euro EURUSD +0.34% rose to $1.4212 from $1.4125 in late North American trading on Tuesday. See real-time currency quotes and tools. The dollar index DXY -0.32% , which tracks the U.S. unit’s performance against a basket of six currencies, stood at 74.828, down from 75.210 late Tuesday. Analysts said the euro was boosted after a Bloomberg news report, citing unidentified sources, said officials are weighing proposals that include credit lines designed to prevent the spread of contagion to weaker euro-zone economies and allowing the 440 billion euro ($626 billion) European Financial Stability Facility to provide loans to recapitalize banks. The developments on both sides of the Atlantic helped lift equities and other risk-correlated assets and currencies, while weighing somewhat on the greenback, said strategists, who nonetheless warned that such moves could be short-lived. “The relief risk rally yesterday causing a broad dollar and precious metals sell-off looks a bit temporary as markets trade against a very uncertain outlook emerging from the continuing euro-zone debt crisis and the U.S. debt-ceiling stalemate,” said Adrian Schmidt, currency strategist at Lloyds Bank in London. Also Wednesday, the dollar USDJPY -0.34% lost ground on the Japanese yen, down to ¥78.89 from ¥79.25 late Tuesday. The British pound GBPUSD +0.07% bought $1.6134, compared with $1.6112 late Tuesday. Sterling had weakened in earlier action on fears the minutes of the Bank of England’s July 7 monetary-policy meeting earlier this month would show more support for a potential expansion of the central bank’s quantitative-easing program, said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London. Instead, a reference to asset purchases was dropped altogether, he noted. As expected, committee members again voted 7-2 to leave its key lending rate unchanged at 0.5% and remained 8-1 in favor of leaving the size of its asset-purchase program, centerpiece of its quantitative-easing strategy, unchanged at £200 billion. The Australian dollar AUDUSD +0.11% changed hands at $1.0749, compared with $1.0721.

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