By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar was little changed versus most major rivals Tuesday as a rally in short-dated Spanish and Italian government bonds failed to provide a spark for euro bulls and traders awaited further details of the European Central Bank’s bond-buying plans.
The ICE dollar index DXY +0.01% , which measures the unit against a basket of six major rivals, was virtually flat at 81.241. The WSJ dollar index XX:BUXX +0.10% , which measures the currency against a slightly larger basket, rose to 70.84 from a previous close of 70.80.
The euro EURUSD -0.1798% traded at $1.2590 versus the dollar, little changed from Monday, when U.S. markets were closed for the Labor Day holiday.
The euro rose in earlier activity as Spanish and Italian yield curves steepened sharply, fueled by leaked remarks from ECB President Mario Draghi’s closed-door testimony before a European Parliament committee late Monday. Read: Draghi remarks fuel Italy, Spain bond rally .
Draghi reportedly told the panel that the ECB could buy bonds with maturities as long as three years without violating the central bank’s mandate. Investors are looking for more details of the ECB’s bond-buying intentions when Draghi holds his monthly news conference on Thursday, following a meeting of the ECB Governing Council.
“Irrespective of textbook arguments about the likely [consequences] on the currency of the ECB’s policy direction, the euro is likely to find near-term support from any action from the ECB,” said Jane Foley, senior currency strategist at Rabobank in London.
The ECB’s December and February long-term refinancing operations clearly boosted risk appetite in currency markets over the first four months of the year, with the safe-haven yen and U.S. dollar the weakest performing G-10 currencies through late April, she noted.
“That said, recent gains in the euro and the weaker tone of the dollar, which has stemmed from anticipation that the Fed will soon act, suggest that there is scope for a ‘sell-on-the-fact’ reaction in euro/U.S. dollar this month. Much more powerful downside risks in euro/U.S. dollar are possible if either the ECB or the Fed disappoint,” Foley said.
The Australian dollar AUDUSD +0.0075% traded at $1.0262 versus its U.S. counterpart, up 0.2%. The Reserve Bank of Australia on Tuesday kept its benchmark cash rate on hold at 3.5%, as was widely expected.
The British pound GBPUSD -0.0681% traded at $1.5884 against the dollar, little changed on the day.
The dollar was up 0.1% versus the Japanese currency USDJPY +0.1224% at 78.38 yen.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
