The euro steadied versus the dollar on Tuesday, after having bounced off an 11-year trough the previous day as investors decided to take profits on extremely bearish positions.
The common currency last traded near $1.1238, having pulled up from Monday’s low of $1.1098 – a level not seen since September 2003.
Investors sold the euro first thing this week after the Greeks voted in a new hardline, anti-bailout government led by Alexis Tsipras.
However, the euro has since managed to regain some footing, as investors booked some profits on their euro bearish bets.
Given that the euro had slid by about five U.S. cents in the wake of the European Central Bank’s decision last Thursday to launch quantitative easing and the elections in Greece, it was not surprising to see some short-covering in the euro, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
Market participants are now probably looking for opportunities to put such euro bearish bets back on, he said.
“If the euro rises further, I think there will be lots of people who will look for opportunities to sell into the rally,” Murata said, adding that the ECB’s bond-buying program is likely to weigh on the euro going forward.
Investors will also be keeping an eye on Greece’s forthcoming negotiation with international lenders.
“Perhaps the market rightly or wrongly is pinning some hopes on Mr Tsipras being more conciliatory,” David de Garis, senior economist at National Australia Bank, wrote in a note to clients. “In any case, the market will be paying close attention to news that could well see more euro volatility for now at least.”
“Markets now wait for details on Tsipras’s policies and how much compromise he is willing to embrace in his dealings with international creditors,” he wrote.
The dollar eased 0.2 percent versus the yen to 118.26 yen. Over the past week, the dollar has traded in a range of roughly between 117.00 yen to 119.00 yen.
The U.S. Federal Reserve starts a two-day policy meeting on Tuesday and investors are keen to hear its take on the rash of policy easings from the euro zone to Canada and Switzerland.
The general assumption is the Fed will acknowledge the uncertain global outlook and stick to its promise to be patient on tightening. Yet expectations remain that it will start raising rates by mid-year, a trajectory that implies further broad-based gains for the dollar.
One key development on Monday was Standard & Poor’s decision to cut Russia’s sovereign credit rating to junk status, bringing it below investment grade for the first time in a decade.
The rouble had fallen sharply on Monday after the S&P’s downgrade. The dollar, which had surged roughly 7 percent versus the rouble on Monday, last stood at around 68.32 against the rouble.