Euro recovers from biggest 2-day drop since January 2009 By Deborah Levine and William L. Watts, MarketWatch NEW YORK (MarketWatch) — The dollar slipped versus most major rivals on Wednesday as investors awaited the outcome of the Federal Reserve’s two-day policy meeting, while keeping an eye on developments in Greece after an unexpected call for a bailout referendum crushed risk appetite the previous day. The dollar index DXY -0.60% , which measures the performance of the greenback against a basket of six currencies, fell to 76.844, compared to 77.298 in late North American trading on Tuesday. The euro EURUSD +0.71% rose to $1.3805, from $1.3712 Tuesday. The British pound GBPUSD +0.31% rose to $1.5994, from $1.5963. Against the Japanese yen, the dollar USDJPY -0.39% bought 78.04 yen, down from ¥78.34 Tuesday. The Fed’s Open Market Committee will conclude its two-day meeting and release its policy statement at 12:30 p.m. Eastern time. The central bank will release its updated economic forecasts just before Fed Chairman Ben Bernanke will host a news conference at 2:15 p.m. Eastern. “No policy changes are expected, but investors will be listening for any shift on his stance on QE3,” or a third round of quantitative easing, said Chris Walker, strategist at UBS. But some analysts warned that recent market turmoil increases the risk that the Fed makes a move. Read more on Fed’s Bernanke. “The volatility in the markets pushed the Reserve Bank of Australia to lower interest rates [this week] and the Federal Reserve could be spooked into similar action,” said Kathy Lien, director of currency research at GFT. “Of course, there is no room to move on rates in the U.S., but the Federal Reserve could increase the size of their asset purchase program or change their communications strategy,” she said. Quiet on the Greek front The day's moves reverse some of the euro’s losses in the last two sessions — the biggest two-day percentage drop since January 2009. On Tuesday, markets were spooked by Greek Prime Minister George Papandreou’s announcement that the country would hold a confidence vote as well as a referendum on Europe’s latest rescue plan. Papandreou is set to meet with European leaders, who appeared blind-sided by the move, in Cannes, France, on Wednesday — a day ahead of the Group of 20 summit. “Headline risk remains acute as German Chancellor [Angela] Merkel and French President [Nicolas] Sarkozy speak with the Greek government, the International Monetary Fund and their European partners ahead of a Group of 20 summit,” said Sue Trinh, strategist at RBC Capital Markets. Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts is a reporter for MarketWatch in Frankfurt. Sarah Turner in Sydney contributed to this report.

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