The euro continued to flip-flop in its recent tight range on Wednesday, leaving Nordic currencies to grab the market's attention as they slid ahead of the day's pending interest rate decision in Norway.
The common currency was recently trading at $1.2561 compared with $1.2565 late Tuesday in New York. The dollar was at ¥78.51 compared with ¥78.50, while the euro was at ¥98.61 compared with ¥98.65. Meanwhile, the pound was trading at $1.5819 compared with $1.5826 late Tuesday in New York.
U.S. Federal Reserve Chairman Ben Bernanke is widely expected to offer a signal one way or another on the chance for further monetary policy easing in a speech on Friday. Until that event passes, major currency pairs are in limbo. And euro traders are reluctant to place positive or negative bets before next week's decision by the European Central Bank.
But Nordic currencies—popular with investors seeking a haven for their cash—fell amid some concerns over rising economic stress in the region.
The Norwegian krone hit its weakest level in a week against the euro ahead of the Norges Bank rate decision at 0800 ET. Analysts widely expect the central bank to keep rates on hold at 1.5% as Norway's economic growth during the first half of the year has been the strongest in eight years. That leaves investors to focus on the statement accompanying the decision in case the central bank signals a change to interest rates in the future.
Although the krone has dipped Wednesday, it still stands at close to nine-year highs against the euro. Some think that could raise the odds of an official response to knock it down, although local analysts are skeptical.
"We think that Norges Bank's tone will be similar to the July meeting's, signaling that rates should rise 'between December this year and June next year'," said Flemming Nielsen, senior analyst at Danske Bank based in Copenhagen. "If this proves correct, the probability of a rate cut [this year] should drop and [the krone] is likely to strengthen."
In neighboring Sweden, think tank the National Institute of Economic Research said it expects a new slump to hit the Swedish economy as demand for its exports wilt amid the debt crisis in Europe. Slowing growth as well as the disinflationary effects of a stronger currency will prompt the Riksbank to lower its key rate to 1% by the end of this year from 1.5% currently, the NIER said, in comments that helped to push the Swedish krona to its weakest level this month against the euro.
Denmark's krone is pegged to the euro, and therefore rarely moves. But signs of economic stress there are intensifying, as data Wednesday showed that in the second quarter of the year, Danish economic output, or gross domestic product, contracted more sharply than expected, by 0.5% against expectations for 0.1%, as solid exports failed to offset poor private consumption and declining investments.
In Asia, the Shanghai Composite stock index closed down 1% Wednesday to mark its lowest point since February 2009. Iron ore prices are also under pressure, signaling slowing Chinese demand, and casting a shadow over the Australian dollar, which often acts as a barometer of nerves over China.
Traders said the People's Bank of China is gauging demand from banks for potential offers of seven-, 14- and 28-day reverse repurchase agreements at its open-market operations Thursday, with the aim of injecting liquidity into the financial system to bolster a slowing economy.
The central bank's query about interest in 28-day reverse repos has caught some attention because if conducted, it will mark the first time in about 10 years that the authorities are offering a liquidity easing instrument with a relatively long tenor.
Looking ahead, German inflation data are due at 0800 ET and the second estimate of U.S. gross domestic product is out at 0830 ET.
The Wall Street Journal dollar index, which tracks the U.S. dollar against a basket of currencies, was at 70.915 from about 70.884.
—Ina Zhou and Shen Hong contributed to this article.
