FRANKFURT (MarketWatch) — The U.S. dollar regained some ground on major rivals Tuesday ahead of the release of minutes from the Federal Reserve’s latest interest-rate-setting meeting, while the euro lost steam after an Italian debt auction.
The dollar index DXY +0.68% , which measures the greenback against a basket of six other currencies, stood at 74.134, up from 73.728 late Monday.
The euro EURUSD -0.70% changed hands at $1.4408, down from $1.4516 in late North American trading on Monday, giving up early gains as U.S. stock index futures lost ground and a closely watched sale of Italian government debt saw disappointing demand.
After a summer respite, the Italian government returned to the bond market to sell 7.7 billion euros ($11.1 billion) of debt, including €3.75 billion of the new 10-year benchmark bond, or BTP, maturing in March 2022. The sale produced an average yield of 5.22%, down from 5.77% in a sale of the September 2021 bond in late July.
The sale served as a “litmus test” for the market, said Kathleen Brooks, research director at Forex.com.
It comes after the European Central Bank began buying Spanish and Italian government bonds in the secondary market earlier this month as part of an effort to pull down soaring yields and insulate Italy, the euro-zone’s third-largest economy, and Spain, its fourth largest, from the region’s sovereign-debt crisis.
The central bank’s prohibited from buying bonds at auction. The 10-year Italian yield IT:10YR_ITA +0.67% spiked toward 5.16% in secondary trading, and was seen at 5.12% in recent action, a rise of around 11 basis points.
Strategists at RBC Capital Markets termed the auction disappointing, with bids for the 10-year supply exceeding the amount on offer by just 1.27 times.
The euro’s retreat leaves, from a technical standpoint, the Monday high at $1.4550 as a key resistance level, they said, while support remains at the 100-day moving average of $1.4367.
The British pound GBPUSD -0.63% traded at $1.6319, down from $1.6410 on Monday.
The dollar declined at the start of the week after upbeat U.S. economic data boosted investors’ appetite for riskier assets and after Fed Chairman Ben Bernanke signaled late last week no need for an immediate round of additional stimulus — but still left options open.
“It seems that markets have taken this to mean that we could well see further stimulus, despite the significant barriers against it, both political and fiscal,” said strategists at CMC Markets on Tuesday.
RBC strategists said the minutes will be important, “hopefully providing some clarity on just where the balance of risks currently lie” regarding further U.S. easing. The minutes of the Aug. 9 meeting of the Federal Open Market Committee are scheduled for release at 2 p.m. Eastern.
Ahead of that, investors will see S&P/Case-Shiller data on changes in home prices for June at 9 a.m. Eastern, followed by the Conference Board’s latest reading on consumer confidence for August.
Also Tuesday, the dollar USDJPY -0.01% bought 76.81 yen, little changed from ¥76.84 in late North American trading on Monday.
