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 An early surge by the dollar, building on Monday's 0.5 percent gain,
offered hope of an attack on levels around $1.06 against the euro,
which dealers say is the main barrier to a swift move back to highs
hit in the first half of 2015.
After hitting a seven-month high of $1.0647, the dollar was up 0.15
percent at $1.0671 <EUR=EBS> by 0630 ET and flat on the day against
a basket of currencies. <.DXY>
"We have thought for a week now that these levels around $1.0600,
$1.0640 are the key ones for the euro," said the head of spot
currency trading at a large international bank in London, who asked
not to be named.
"If it gets below these levels it could go very quickly. The pain
trade is obviously in the other direction and I would note that we
have seen clients betting on the dollar using options to cheapen
their dollar positions into the end of the year."
Almost all major currency trading banks are forecasting a rise
towards parity with the euro in the months ahead, but the past two
weeks have proved stickier for the dollar than some expected.
Options markets also point to substantial barriers to further gains
between current levels and March and April highs around $1.0450.
Some traders said there were concerns of a lower printout on U.S.
consumer price data due later in the session, potentially weakening
the case for a rise in Federal Reserve interest rates that is now
broadly expected next month.
The inflation numbers are unlikely to shift the broader picture of a
U.S. central bank on the cusp of raising rates. But in a note
overnight, Citi head of G10 FX strategy, Steven Englander, laid out
a handful of risks to current market pricing from Wednesday's policy
meeting minutes.
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"The big risk is that the minutes convey that many FOMC members are
less convinced on a December hike than the market now thinks and
could easily be swayed by market uncertainty or other events to wait
another couple of meetings," he said.
In sharp contrast with the Fed, the European Central Bank is
considered very likely to expand or extend its quantitative easing
program next month, while potentially also cutting deposit rates,
which is keeping the euro under pressure.
Sterling bounced back from initial losses to trade flat on the day
at $1.5203. It was 0.2 percent higher against the euro.
"There is a lot of natural retail demand for sterling around $1.50,"
another dealer said. "It is always going to be hard to break that
level."
(Editing by David Goodman)
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