-- Dollar steady against range of currencies as EU summit boost fades
-- Markets cautious before key U.S. data, European rate decisions
By Laura Clarke
The dollar was broadly steady against the euro and a range of currencies in European trade Tuesday as traders hunkered down ahead of a U.S. holiday and a key week of U.S. data and European interest rate decisions.
The optimism that bubbled up in the wake of Friday's EU summit deal to reduce Spanish and Italian borrowing pressures eased back a bit but remained largely intact, despite lingering uncertainties over the details of the deal and the exact level of agreement across the 17-country euro-zone bloc.
"[The] optimism hasn't faded too badly and the euro's rally on last week's summit has not seen an unpleasant unravelling," said Daragh Maher, HSBC's senior currency strategist in London.
"However, I do expect the market to keep a generally tight range and be reluctant to place any major positions ahead of the key decisions towards the end of the week," he said, citing Thursday's double dose of monetary policy updates from the European Central Bank and Bank of England.
"Banks are increasingly cautious and constrained with their approach to intervention, but we are expecting easing from both the BOE and ECB, and only knee-jerk weakness from the euro on the back of this, as it is largely priced in," said Mr. Maher.
The euro traded around the $1.2580 mark against the dollar, while the pound largely traded a little below $1.57.
Sweden's Riksbank is also scheduled to decide on rates, albeit Wednesday, when U.S. markets will be closed.
Analysts at ING warned that an unchanged rate is not a given. "An unchanged 1.50% policy rate is highly likely, but this is not the full story," they said, adding that if the krona strengthened much below the SEK8.70 mark against the euro, then Swedish rates could yet be lowered to 1%. The krona was trading at SEK8.7279 to the euro.
In general, currency strategists said the initial post-EU summit optimism had been overdone and that the market was now waiting for policymakers to put a bit more meat on the bones of the deal.
"Many of last week's announcements were actually pre-existing measures with a lot more detail that needs to be worked out before implementation," said Ian Stannard, a senior currency strategist at Morgan Stanley in London.
Mr. Stannard added that any ECB rate cut would be negative for the euro.
Widely watched U.S. nonfarm payrolls data will wrap up the week Friday, after a poor manufacturing figures Monday increased the potential for more monetary stimulus from the Federal Reserve to lift the flagging U.S. economy.
At 1059 GMT, the euro was trading at $1.2586 against the dollar, compared with $1.2581 late Monday in New York, according to trading system EBS. The dollar was at Y79.82 against the yen, compared with Y79.51, while the euro was at Y100.45, compared with Y100.03. Meanwhile, the pound was trading at $1.5675 against the dollar, compared with $1.5692 late Monday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 81.905, compared with the 81.897 close late Monday in New York.
A summary of key levels for chart-watching technical strategists is below:
