By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar eased against major global currencies Tuesday, reflecting caution ahead of a decision by Germany’s top court on the euro-zone’s permanent rescue fund and this week’s Federal Reserve meeting, where the central bank may decide on further bond purchases to stimulate the economy.
The ICE dollar index DXY -0.24% , a gauge of the greenback’s moves six other major currencies, fell to 80.222, down from 80.408 in North American trade late on Monday.
The Federal Open Market Committee is due to announce its decision Thursday after a two-day meeting.
The euro EURUSD +0.16% inched higher to $1.2782 from $1.2764, as focus remained on Wednesday’s ruling by Germany’s constitutional court on the legal challenges to the country’s participation in the European Stability Mechanism.
The court on Tuesday confirmed it would proceed with its ruling the following day, despite a new challenge filed late last week that had led to speculation the decision could be delayed. Read: Germany's top court to decide rescue fund's fate .
“Last week, markets ‘bought the rumor’ about what the [European Central Bank] would do, and then ‘bought the news’ when the rumors were proven correct. Now we are seeing ‘risk’ rally not so much on the hope the Constitutional Court will rule that changes to the ESM are legal, as on the prospect that they will reach a conclusion one way or the other,” said Kit Juckes, head of foreign exchange at Société Générale.
“The only conclusion that makes any sense is that the bears are being squeezed and then bulls are in command. [A break above] $1.2841 is they chart level that could open the way for a spike to $1.30, where we would like to sell the euro,” he said, in a note to clients.
“In the absence of any economic releases in Europe [Tuesday], focus will be on political developments, starting with the German vote on ESM constitutionality,” Crédit Agricole currency strategist Sireen Harajli wrote to clients.
“Today’s [U.S.] trade-balance figures may cause a small reaction in [the dollar], but the focus will still be on the [Fed] announcement on Thursday, with the expectation that the Fed will announce more policy accommodation, keeping the dollar under pressure,” Harajli said.
Among other major currency pairs, the British pound GBPUSD +0.23% was fetching $1.6025, reclaiming the $1.60-handle, from $1.5995 in the U.S. on Monday.
Against the Japanese yen, the dollar USDJPY -0.44% was changing hands for ¥77.93, down from ¥78.31.
The Australian dollar AUDUSD +0.58% was trading at $1.0392, up a bit from $1.0336.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
