The euro held on to gains against the dollar Wednesday as investors hoped that the European Central Bank is cooking up a plan to help fiscally frail euro-zone member countries, such as Spain and Greece.
The euro was recently trading at $1.2466 compared with $1.2472 late Tuesday in New York. The dollar was at ¥79.27 compared with ¥79.28, while the euro was at ¥98.83 compared with ¥98.19. Meanwhile, the pound was trading at $1.5801 compared with $1.5785 late Tuesday in New York.
The euro traded steadily against the dollar at a near seven-week high but failed to add to the previous day's gains as traders said the common currency was being hemmed in by a sell order in the market for €500 million to keep the exchange rate under $1.25.
Portuguese 10-year government borrowing costs continued to fall, taking the yield to under 9%, a level even lower than before the country was bailed out by international lenders in May 2011, benefiting from a supportive tone amid expectations that the ECB may reveal a plan, possibly including capping the gap in borrowing costs between weaker states and benchmark German bonds at the next policy meeting on September 6.
Greece also came back into focus as Prime Minister Antonis Samaras said his country needed more time to make spending cuts and reforms to unlock funds to keep the debt-racked country afloat, just two days before make-or-break talks in Germany to extend the latest aid programs. Mr. Samaras is scheduled to meet Jean-Claude Juncker, head of the group of finance ministers that share the euro, later Wednesday.
"Market movements due to these political events are driven by expectations on actions to be taken in September rather than actions from the actual meetings this week," said Karl Steiner, a senior strategist at Skandinaviska Enskilda Banken AG, based in Stockholm. "Thus the main driver continues to be hope which is far more fickle than results of concrete action."
The Japanese yen was weaker during the session against the dollar and the euro as Japan posted a larger-than-expected trade deficit for July. Exports slowed sharply amid Europe's debt crisis and faltering global growth—a result that analysts say is likely to increase pressure on the Bank of Japan to take more easing steps to support the domestic economy. The gap in the nation's cross-border trade in goods stood at ¥517.4 billion yen ($6.52 billion) last month after a ¥60.3 billion surplus in June, according to the Ministry of Finance.
Looking ahead, the minutes from the U.S. Federal Open Market Committee are due at 1400 ET. The markets are likely to focus on the discussion related to the possibility for further monetary policy easing by way of asset purchasing, or quantitative easing.
The Wall Street Journal dollar index, which tracks the U.S. dollar against a basket of currencies, was at 71.289 from about 71.250.
