By Deborah Levine and Sarah Turner, MarketWatch
NEW YORK (MarketWatch) — The dollar slipped on Tuesday amid concerns that the U.S. Federal Reserve may extend its easing program in an attempt to combat slowing global growth and a lack of confidence due to Europe’s sovereign-debt and banking crisis.
The dollar index DXY -0.68% , which measures the greenback against a basket of six currencies, fell to 81.466 from 82.002 in late North American trading on Monday.
The euro EURUSD +0.8998% rose to $1.2675 from $1.2572 on Monday.
While Greece tries to form a government following weekend elections, Spanish debt yields eased back after climbing to euro-era highs, allowing traders to turn their focus to the Fed’s two-day monetary policy meeting. See story on Spain’s bill auction.
The central bank will decide whether to continue its current easing policy — buying more longer-dated debt with proceeds of sales of its shorter-term holdings — beyond the expected expiration this month. Read Fed meeting preview.
This program doesn’t expand the Fed’s balance sheet, and it therefore isn’t really akin to printing money like other quantitative easing programs, which tend to involve outright asset purchases. Still, anything that’s easing the interest rate earned in a country is generally negative for the currency.
“Further dollar corrections may be supported by easing from the Fed,” said currency strategists at Brown Brothers Harriman.
The dollar gained on Monday after initial optimism triggered by a pro-Europe win in the weekend’s elections gave way to renewed concern about the health of the Spanish economy. Read about dollar, euro.
But “risk appetite post the Greek election has stabilized,” said Sue Trinh, strategist at RBC Capital Markets.
Trinh also said that market positioning can work against the U.S currency. “Speculative positioning is at record longs,” she said, which can hinder the ability of the dollar to push higher.
Little to move markets is expected to come out of the Group of 20 meeting, but a statement later in the session may briefly distract traders.
Against the Japanese yen USDJPY -0.1682% , the dollar bought ÂĄ79.05, down slightly from ÂĄ79.12 late on the previous day.
The British pound GBPUSD +0.3891% traded at $1.5699, up from $1.5668 Monday.
The Australian dollar rose to its highest level since early May after minutes from the Reserve Bank of Australia’s latest interest-rate meeting showed its decision to cut the cash rate in June was “finely balanced.”
The aussie AUDUSD +0.6371% advanced to $1.0183, compared with $1.0127 late Monday. Read more on Australian dollar.
Deborah Levine is a MarketWatch reporter, based in New York.
Sarah Turner is MarketWatch's bureau chief in Sydney.
