The dollar hovered just below a two-week high on Tuesday as a tough US economy and a weakening euro supported the greenback ahead of the European Central Bank (ECB) policy meeting.
Against a basket of six major currencies, the US dollar index gained 0.05 percent to $96.662 after climbing to $96.816 the day earlier, marking its highest since February 19.
While US treasury yields had retreated from peaks reached in January, demand for the greenback remained strong and traders see the currency have more going for it than some of its rivals.
The dollar also welcomed some boost from higher US bond yields as recent data, including US fourth quarter gross domestic product (GDP), has alleviated concerns over a possible rapid slowdown in economic expansion.
The greenback added 0.1 percent to 111.94 against the yen, having experienced losses on Monday.
Its Australian counterpart was down by 0.1 percent to 0.7084, giving up moderate increases received overnight due to hopes that trade tensions between the US and China will lessen further.
The Aussie, which is sensitive to developments in China, fell after the country’s purchasing managers’ index (PMI) showed on Tuesday that growth at its services sector dropped to a four-month low.
The Australian dollar momentarily traded in the green territory after the Reserve Bank of Australia’s (RBA) kept interest rates unchanged at 1.5 percent.
Chief Forex Strategist Masafumi Yamamoto said the currency got some lift as the RBA refrained from taking an even more dovish stance, but the focal point is still on potential easing by the RBA and the Australian dollar remains on the defensive.
Last month, the Aussie suffered heavy pressure after the RBA took a step back from its long-standing tightening perspective, stating that the next decision in rates could either be lower or higher.
Euro at One-week Low ahead of ECB Meeting
Elsewhere, the euro hit a one-week low ahead of the ECB meeting on Thursday. The central bank is being put on the spot to provide answers with regards to how to keep the euro zone economy from a prolonged loss of momentum.
The single currency slipped 0.07 percent to 1.1328 against the US dollar. The euro posted a seven-day low of 1.1309 on Monday.
Prospects that the ECB will put rate hikes on hold until 2020 and soon re-launch long-term loans to banks have weighed on the European currency, which has shed 1.2 percent against the greenback this year.
The euro’s losses may be down to the fact that the ECB’s new projections on Thursday might paint a more subdued picture than before, according to analyst Antje Praefcke.
The market may already be pricing in a slightly more cautious ECB, which is why the euro is already aiming for the $1.13 mark, Praefcke added.
As a dovish change by major central banks overturned a short revival at the end 2018, price volatility in the world’s highly traded currencies has shrunk recently.
Volatility is vital for traders, who can squeeze out extra profits when prices move wildly. However, the euro/dollar pair, the world’s most-traded pair, has been caught in its most contracted quarterly trading range since the single-currency’s inception.
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