Expectations have built in recent weeks that the European Central Bank will announce at its next policy meeting on September 6 plans to help lower Spanish and Italian bond yields, which some analysts believe will enable the euro to gain further.
Minutes from the latest U.S. Federal Reserve meeting due later on Wednesday were also adding to investor caution. Any hint of monetary easing would weigh on the dollar and benefit the euro but no mention will instead see the euro suffer on lower risk tolerance.
“There are a huge amount of (euro) sell orders at $1.2500, about a billion dollars,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. “We tried to test the upper band and didn’t have enough gas.” “People will also look at the FOMC minutes to see if there is the possibility of any further accommodation and if there is, there is more softness for the dollar,” Schlossberg said.
The euro fell 0.2 percent to $1.2447, still close to Tuesday’s high of $1.2488, and traders said it was likely to hold above $1.2420, where bids were reported.
“The main issue is whether the ECB will start buying peripheral bonds … We have been seeing a bit of short-covering in the euro over the last couple of weeks on fears of a big bazooka,” said Arne Lohmann Rasmussen, head of currency research at Danske Bank. “People are pricing out the risk that the euro zone will implode.”
Danske forecasts the euro will rise to $1.27 in three months as proactive policy from the ECB eases euro zone debt worries and leads investors to trim hefty bets on the currency falling.
