The single currency had come under pressure after the European
Central Bank began a bond-buying program last week that will pump
more than one trillion euros of newly created money into the euro
But the euro won some relief on Monday after weaker-than-expected
U.S. manufacturing, industrial output and housing data pushed down
U.S. debt yields and cooled the dollar's advance.
The U.S. currency's surge since early March has been driven by
growing speculation that the Fed's Open Market Committee (FOMC) will
point towards a June rate rise by dropping a pledge to be "patient".
The dollar has gained around 20 percent against a basket of major
currencies over the past six months <.DXY> as investors bet the Fed
will be the first major central bank to raise rates since the
financial crisis. But some reckon the Fed cannot ignore how much
that rise reduces pressure on inflation.
"Our view is that the Federal Reserve will indeed drop the word
'patient' from the statement but it will be very cautious
nonetheless," said Alvin Tan, currency strategist at Societe
Generale in London.
"The profit-taking continues from yesterday following the poor U.S.
data that we had and the market is being cautious ahead of the FOMC
Having hit a 12-year low of $1.0457 at the start of the week, the
euro was up a third of a percent at $1.0603. The dollar was around
0.1 percent lower against a basket of major currencies.
[to top of second column]
Derek Halpenny, European head of global markets research at Bank of
Tokyo-Mitsubishi UFJ in London, said investors were keen to take
risk off their books ahead of the Fed meeting.
"If you've been short euro over the past week, you've had a good
week, and why would you bother running the risk into what is a
difficult event to predict?"
The dollar was up 0.05 percent to 121.28 yen, stuck in a relatively
narrow range since advancing to an eight-year high of 122.04 on
The Bank of Japan concluded its two-day policy meeting on Tuesday,
at which the central bank stood pat on monetary policy and
maintained its massive stimulus. Market reaction was limited because
the outcome was as expected.
(Additional reporting by Jemima Kelly in London; Editing by Mark
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