The U.S. dollar edged higher against the euro Thursday following a flare-up in the euro-zone’s financial crisis as the European Central Bank prepared to announce its decision on monetary policy.
The euro fetched $1.2991, compared with $1.3003 late Wednesday in North America.
The European Central Bank is widely expected later Thursday to keep its main refinancing rate at 0.5%, with the spotlight set to fall on ECB President Mario Draghi’s press conference following the meeting. The market will also monitor developments in Egypt following the military ouster of President Mohammed Morsi Wednesday.
Draghi may field questions about Portugal, where political turmoil over the country’s austerity plans has spurred a spike in its borrowing costs and concerns that the country may need another bailout.
The euro also lost ground against the Japanese yen Thursday, , buying ¥129.63 compared with ¥129.90. The euro on Wednesday marked its first loss against the yen in five sessions.
The bid yield on Portugal’s 10-year government bond Wednesday jumped to more than 8% for the first time since last November, according to Tradeweb, following the resignations in Portugal of Finance Minister Vitor Gaspar and Foreign Affairs Minister Paulo Portas. Gains in other euro-zone bond yields indicated worries about Portugal were growing.
“Portugal is a huge headache for the ECB — [the Outright Monetary Transactions] cannot play a supportive role, as the sovereign has not yet met the conditions or criteria to trigger the OMT,” said Oanda’s chief currency strategist Dean Popplewell in a note Wednesday.
The OMT bond-buying program was launched last year. Though the ECB hasn’t made any purchases under the policy, Draghi late last month said the program remains key particularly as other central banks mull policy changes.
Draghi had already been expected by analysts to offer “dovish” comments at Thursday’s press conference, emphasizing downside risks to the region’s recession. It will be the first ECB meeting since U.S. Federal Reserve Chairman Ben Bernanke said the Fed may slow the pace of its own monetary stimulus by as early as this year. That projection helped trigger a rise in government bond yields worldwide.
“Thus far, the U.S. dollar offers the only real safety amid higher U.S. and euro-zone yields, the latter fueled by risk aversion on bad news from the region,” wrote Popplewell.
The Bank of England is also expected on Thursday to leave its lending rate unchanged, at a record low 0.5%. The British pound bought $1.5259, down from $1.5275.
Against the Japanese yen, the U.S dollar traded at ¥99.80 versus ¥99.89 on Wednesday, when the greenback slipped back below the ¥100 level.
The ICE dollar index , which measures the U.S. unit against six other major currencies, was still able to rise, to 83.291 from 83.249 on Wednesday. The WSJ Dollar Index , a rival gauge with a slightly wider comparison basket, rose to 75.20 from 75.18.
The next scheduled event facing the currency market is the release of U.S. jobs data for June on Friday. The economy may have created 155,000 net jobs last month, less than the 175,000 gain in May, according to analysts polled by MarketWatch.
The Australian dollar traded at 91.09 U.S. cents, more than 90.62 U.S. cents. The Aussie on Wednesday fell to its lowest level against the U.S. unit since September 2010 on the suggestion that further interest-rate cuts were possible.
Source : Marketwatch
