Dollar Firms Slightly, ECB Expectations Pressure Euro

The dollar edged up slightly in early Asian trade, while the euro came under pressure as the market braced for further stimulus measures from the European Central Bank this week.

Short-term investors increased short positioning on the euro to 16,633 contracts from 9,220 a week ago, according to data for the week ended May 27 released by the Commodity Futures Trading Commission on Friday. IMM/FX

The ECB is preparing a package of policy options for its June 5 meeting that includes cuts in all its interest rates, Reuters reported last month.

“With so much expected from next week’s meeting, focus is shifting to what the Governing Council could do to ‘surprise’ the markets,” such as signaling that more aggressive unconventional quantitative easing measures could be forthcoming, strategists at CitiFX wrote in a note to clients.

“If the ECB does not surprise markets, we could see some cautious profit taking on EUR. That said, we would still think that the risks for EUR could be on the downside over more medium term,” they said.

The euro edged down slightly to $1.3627 EUR=, and remained not far from a three-month low of $1.3586 touched on Thursday.

The dollar index, which tracks the greenback against a basket of six major rivals, edged up about 0.1 percent to 80.413 .DXY. It remains within sight of Wednesday’s high of 80.581, which was its loftiest peak since early April. A break of its April 4 high of 80.599 would take it to its highest levels since mid-February.

The dollar bought 101.92 yen JPY=, up about 0.1 percent against its Japanese counterpart.

The dollar’s direction depends on whether U.S. Treasuries continue to rally. In recent weeks, low U.S. yields have pushed down the greenback, making dollar-denominated investments less attractive.

The yield on benchmark 10-year U.S. Treasuries US10YT=RR edged up in Asia to 2.480 percent from its U.S. close of 2.457 percent on Friday, moving away from Thursday’s low of 2.422 percent which was its deepest nadir since last June.

Markets in China and Hong Kong were closed on Monday for a public holiday, which could lead to less forex market activity. They will reopen on Tuesday.

Looking ahead, central bank policymakers in Australia, Canada and Britain will also meet this week.

Friday will bring the closely watched U.S. nonfarm payroll report for May. Employers are expected to have added 215,000 workers last month, a Reuters poll found, after April’s 288,000 increase, which was the biggest gain since January 2012.

Source: Reuters