Much of the morning's market talk concerned a fine for French bank
BNP Paribas that requires it to pay roughly $9 billion to U.S.
authorities - potentially weakening the euro - but the single
currency stayed well bid, bumping up against resistance around its
55-day moving average at $1.3698.
A number of analysts have returned to arguing in recent weeks that
the dollar is on the verge of a push higher, given the prospect of
rises in U.S. interest rates sometime next year.
But the greenback disappointed heavily on similar bets at the start
of this year and there is little sign yet of such strength
materializing. The euro has recovered all of the ground lost since
the ECB announced a new round of monetary easing a month ago. The
bank has its next policy meeting on Thursday.
"I'm not sure we're quite at that level yet, but above $1.38 I think
might put it back on the bank's radar," Morgan Stanley currency
strategist Ian Stannard said.
"$1.37 is the top of the recent range so I wouldn't be surprised if
there are big stops around there."
Dealers pointed to a large option taken last month that would be
triggered by a break above $1.37.
Stannard is among those calling for a stronger dollar, however,
pointing to increasingly stretched valuations on European stock and
bond markets which may begin to stem the flood of investment seen
over the past six months.
The ECB's action last month will push yet more cash into circulation
in Europe, but growth remains very weak at a time when U.S. jobs
data on Thursday may show the non-farm economy created more than
200,000 new jobs for the fifth-month running.
One big question is where BNP will get the dollars it needs to pay
its U.S. fine. Some traders were speculating on Monday that the bank
has not hedged the bulk of any such dollar order and will need to
buy the dollars in the market. Any sign of that, several said, would
launch a volley of euro sales.
"Although the bank may have pre-bought a certain amount of USD from
their EUR holdings, the assumption is that there is likely to be
more euro sold and dollar purchased now that the final figure is
confirmed," Investec said in a note to clients.
The euro was flat at $1.3690.
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The Australian dollar, meanwhile, rose after a central bank
statement was less dovish than some market participants expected and
stopped short of explicitly talking down the currency.
The Reserve Bank of Australia kept its cash rate steady at a record
low of 2.5 percent as widely expected, after minutes of its last
policy meeting in June predicted subpar economic growth for the
whole year ahead.
"The fact that the RBA has maintained its existing message on policy
has given the Aussie some support," Stannard said. "The domestic
picture is against it, but the global environment is giving it some
help. When that changes the Aussie will come back under pressure."
The Aussie last traded at $0.9445 <AUD=D4>, up less than 0.2 percent
after hitting $0.9464, its highest this year.
The Australian currency was also bolstered by upbeat data from its
largest trading partner; China's official Purchasing Managers' Index
rose to 51 in June from May's 50.8, while a separate private survey
by HSBC also showed the PMI expanded for the first time in six
The dollar index edged slightly up on the day to 79.824, pulling
away from 79.759 - its weakest since early May.
Against the yen, the dollar inched up to 101.48 <JPY=>, but remained
not far from Monday's six-week low of 101.23 yen.
(Editing by Louise Ireland)
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