By William L. Watts and Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar edged higher on Monday, as traders awaited this week's meeting of the Federal Reserve against a backdrop of rising worries about the staying power of the economic recovery.
Speculation has mounted that the central bank might again take action to lift the slowing U.S. economy, including the purchase of assets, as part of so-called "quantitative easing" measures.
After slumping Friday on a disappointing U.S. jobs report for July, the greenback benefited Monday from the absence of significant economic reports.
But "the possibility of further quantitative easing by the Fed should keep the greenback under pressure for the next 24 hours," said Kathy Lien, director of currency research at Global Forex Trading.
The dollar index (DXY 80.59, +0.19, +0.23%) , a measure of the greenback against a trade-weighted index of major rivals, drifted higher to 80.558 from 80.406 in North American trade late Friday.
The index and the dollar slipped Friday after July U.S. jobs data proved weaker than expected.
The euro (EURUSD 1.3239, -0.0051, -0.3838%) slipped to $1.3245, down slightly from $1.3277 late Friday. The dollar bucked recent weakness versus the Japanese yen (USDYEN 85.8200, +0.4200, +0.4917%) to trade at ¥85.73, up from ¥85.42 on Friday.
The British pound (GBPUSD 1.5948, -0.0039, -0.2440%) was slightly lower on the day, changing hands at $1.5956 versus $1.5966 on Friday.
The Fed may offer more cautionary language on the growth outlook but few economists expect it to buy more bonds this month in an effort to ward off a double-dip recession.
The Fed's rate-setting Open Market Committee will hold a one-day meeting on Tuesday. Read more about the upcoming Fed meeting.
"A steady Fed would likely provide some short-term support for the dollar," said Gareth Berry, currency strategist at UBS. "We remain constructive on the dollar's prospects given that growth differentials between the U.S., the euro zone, Japan and the U.K. are likely to widen to the dollar's advantage into year-end."
The euro, however, may be underpinned by strong near-term data. Germany on Monday said its trade surplus widened in June as exports surged. That underlined expectations that upcoming second-quarter gross domestic product data will show strong manufacturing-led surge by the euro zone's biggest economy and propelling a strong pickup for the region as a whole. Read about German exports.
But strategists at Brown Brothers Harriman warned that strong second-quarter euro-zone growth has already been factored into the market.
"The real question here is can this be sustained into Q3, especially as the U.S. economy continues to struggle," they wrote. "The answer is, probably not."
Aside from German trade data, there were no significant European data released Monday. No major U.S. or Canadian data are due.
Japanese Finance Minister Yoshihiko Noda on Monday said he was watching foreign exchange as the dollar marked multimonth lows versus the yen, reports said.
"Excessive disorderly foreign exchange moves would have adverse effects on the stability of the economy," Noda said, according to Reuters.
The remarks echo warnings issued by Noda last week, but strategists noted skepticism over the threat of intervention.
"In a clear demonstration of the forces at play, those warnings were swept aside on Friday as a disappointing U.S. payrolls report saw dollar/yen slump to fresh year-to-date lows," said Neil Mellor, currency strategist at Bank of New York Mellon.
Although the pair drifted higher Monday in the wake of Noda's latest warning, "the market's recent conduct will undoubtedly raise questions at the ministry as to just how long this will last," he said.
