By V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The euro lost ground in quiet trade Monday as investors feared that the European Central Bank’s policy actions this week may not match expectations stirred by Mario Draghi’s declaration last week to do whatever was needed to save the shared currency.
The euro EURUSD -0.52% bought $1.2256. The currency had jumped as high as $1.2389 on Friday, before edging down to $1.2320 late in North American trade.
“The euro has drifted lower in the European session though conviction has been low, with a busy week ahead, and pressure will be on the ECB to actually deliver in the right setting,” said Chris Walker, currency strategist at UBS.
The gains on Friday followed news reports that ECB President Draghi wants to discuss purchases of sovereign bonds by the central bank, in tandem with the euro-zone rescue fund.
Some reports said Draghi was considering another long-term-refinancing operation, or LTRO, to make more cheap funds available to financial institutions.
“Despite market expectations of ECB intervention, we expect it to keep its policy stance unchanged, denting the current risk rally,” said Sue Trinh, senior currency strategist at RBC Capital Markets.
“There is a reluctance to bring in LTRO again, while bond purchases will require a giant leap forward politically.”
Markets vulnerable
Analysts at Credit Agricole said expectations were running high that global central banks would take more policy actions at present, likely leaving markets vulnerable in case those hopes weren’t met.
“Given the rally in risk assets at the end of last week, a lack of action by policy makers this week suggests significant scope for disappointment,” Credit Agricole strategist Mitul Kotecha wrote in a note to clients.
The ICE dollar index DXY +0.35% , a measure of the greenback against a basket of six major global currencies, rose to 82.772 from 82.343 on Friday.
The WSJ dollar index XX:BUXX +0.31% , a recently launched gauge of the dollar’s performance against other heavily traded major currencies, rose to 71.82 from 71.73.
