Dollar edges lower on hopes for ECB action

Dollar | ECB

The U.S. dollar edged lower against the other major currencies on Tuesday, as investor confidence was buoyed by growing expectations that the European Central Bank will soon act to stem the debt crisis in the euro zone.

During European morning trade, the dollar was fractionally lower against the euro, with EUR/USD edging up 0.09% to 1.2412.

Expectations that the ECB will soon take steps to help lower Spanish and Italian borrowing costs have been building since ECB head Mario Draghi indicated last week that the bank may restart its bond buying program.



Investors were waiting to see if Spain or Italy request assistance from the bloc’s bailout funds, after Spanish Prime Minister Mariano Rajoy indicated last week that Madrid may ask for European Financial Stability Facility aid.

Meanwhile, preliminary data showed that Italian gross domestic product contracted by 0.7% in the second quarter, slightly worse than expectations for a 0.6% contraction.

The greenback was also higher against the pound, with GBP/USD up 0.11% to hit 1.5619.

In the U.K., official data showed that manufacturing output contracted sharply in June, falling 2.9%, but remained better than expectations for a 4.1% decline.

U.K. industrial output fell 2.5%, beating expectations for a 3.4% drop.

Elsewhere, the greenback was higher against the traditional safe haven yen, but inched lower against the Swiss franc, with USD/JPY rising 0.19% to 78.38 and USD/CHF dipping 0.05% to 0.9682.

The Swiss National Bank said earlier that its foreign currency reserves climbed to a record CHF406.5 billion in July, from an upwardly unrevised CHF365.1 billion in June, indicating that the central bank has continued its currency market intervention to defend the 1.20 per euro exchange rate floor.

Elsewhere, official data showed that consumer price inflation in Switzerland fell by 0.5% in July, slightly less than expectations for a 0.6% decline.

The greenback eased lower against its Canadian, Australian and New Zealand counterparts, with USD/CAD down 0.15% to 0.9985, AUD/USD inching up 0.11% to 1.0581 and NZD/USD edging up 0.04% to trade at 0.8201.

Earlier Tuesday, the Reserve Bank of Australia left interest rates unchanged at 3.5% in a widely anticipated decision, saying it was too soon to gauge the full impact of past interest rate cuts.

In its policy statement, the RBA said the exchange rate "has remained high, despite the observed decline in the terms of trade and the weaker global outlook."

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, slipped 0.07% to 82.22.

Later in the day, Federal Reserve Chairman Ben Bernanke was to speak at an event in Washington DC.

(Forexpros)