MW: Dollar pares loss as traders eye central banks
By Deborah Levine and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — The U.S. dollar slipped on Monday, with traders taking a cautious approach ahead of high-profile speeches later in the week by Federal Reserve Chairman Ben Bernanke and European Central Bank chief Mario Draghi.
The ICE dollar index DXY -0.03% , which tracks the U.S. unit against six major currencies, slipped to 81.567 from 81.625 in North American trade late Friday.
The euro EURUSD +0.0306% changed hands at $1.2521, up slightly from $1.2511.
The WSJ Dollar Index XX:BUXX -0.02% , which tracks the greenback against a slightly larger basket of currencies, dipped to 71.04 from 71.06.
Last week, speculation that the Fed would launch a new bond-buying program rose markedly after the release of minutes from the last policy meeting. But some analysts said those expectations may need to ratcheted back.
“Fed Chairman Ben Bernanke may refrain from hinting at another round of quantitative easing as the economy gets on a more sustainable path,” said David Song, a currency analyst at DailyFX.com.
Additional QE, which relies on the creation of dollars, is seen as potentially negative for a currency.
The dollar came off the lows Friday after a manufacturing report from the Federal Reserve Bank of Dallas.
”An uptick in the Dallas Fed Manufacturing index may spark a bullish reaction in the U.S. dollar as it dampens the case for additional monetary support,” Song said.
Bernanke is scheduled to speak Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyo. Draghi is expected to speak on Saturday.
Bernanke in 2010 gave a speech at Jackson Hole widely recalled as setting the groundwork for the Fed’s subsequent decision to launch a second round of quantitative easing, or QE2.
Elsa Lignos, currency strategist at Royal Bank of Canada, argued that Bernanke wasn’t so explicit.
“Contrary to common wisdom, Bernanke did not hint at QE2 during his Jackson Hole 2010 speech. Instead, he simply outlined the available options and spoke about each in terms of costs and benefits. We expect something similar this time around,” she said.
German data, comments
While London markets were closed for a holiday, German Bundesbank President Jens Weidmann reiterated his opposition to a resumption of government-bond purchases by the ECB. In an interview published Sunday in Der Spiegel magazine, he warned that such a plan cut too close to financing of governments via the “money press.”
He also warned that such central- bank funding could prove “addictive, like a drug.” Read about Bundesbank, ECB .
The euro showed little reaction to a steeper-than-expected drop in the Ifo Institute’s August index of German business confidence. The index declined to 102.3 from 103.3 in July. Economists had forecast an August reading of 102.7.
The British pound GBPUSD -0.1284% traded at $1.5801, little changed from $1.5808 on Friday.
The Australian dollar AUDUSD -0.3397% fetched $1.0387, down from $1.0412.
The dollar bought 78.68 Japanese yen USDJPY -0.0584% , virtually unchanged from Friday.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
