By Tom Westbrook and Amy Yamamitsu
SINGAPORE / TOKYO (Reuters) – The dollar remained steady on Tuesday as investors weighed on whether an aggressive turn from the European Central Bank could hit the euro this weekend, while the pound suffered losses due to Brexit uncertainty.
After a day of thin holiday trading, the greenback was a basket of currencies () at 93.128 and marginally stronger against the euro ($ 1.1809).
The move was modest in the Asian day, but the dollar declined under dollar pressure as risk rebounded in equity markets. [MKTS/GLOB]
The main focus this week is on the policy decision of the European Central Bank on Thursday.
Most analysts do not expect a change in the central bank’s policy stance, but it seems concerned with its inflation forecasts and the euro’s strength.
The meeting was marked as a two-year high of currency at the beginning of the month at just above $ 1.20 after ECB chief economist Philip Lane commented on its level.
Commonwealth Bank of Australia (OTC 🙂 currency analyst Kim Mundy said, “The ECB may raise more concerns over further appreciation in the euro and may cause some fall in its inflation projections.”
“In our view, the dollar may gain momentum in the remaining days of this week as the ECB takes a sharp turn.”
An interview in the newspaper indicated that Yoshihide Suga, who was at the forefront of succeeding Shinzo Abe in next week’s leadership vote – little else, traded strongly against the Japanese yen amid Joshi’s election.
Analysts say many money market participants no longer consider the leadership race as a catalyst, as the next leader is likely to follow Abe’s policy path.
“About eight years ago (when Abe took power), the yen was strong at around $ 70 per dollar. But with the current dollar / yen level, currency-wise successors can’t do much,” Daisuke Karakama, Chief Strategist said. At Mizuho Bank.
“Strong local equity should be more of a concern rather than a market,” he said.
According to a Financial Times report the UK could legislate to end its Brexit withdrawal agreement. The European Union has warned that no deal will happen if there is a chance of a difficult Brexit.
The new talks are scheduled to start later in London on Tuesday.
The pound lost 0.2% to $ 1.3146, after shedding 0.8% overnight, and sat a fraction above the two-week low against the euro at 89.76 pence ().
Some traders also sold sterling against the yen (), which had traded at 139.63, hovering near a two-week low of 139.58 in the previous session.
“The key question for markets is whether this comment is still mostly over,” said NAB’s economics director Tapas Strickland. “The light market reaction makes markets feel that way and still smell a deal.”
Meanwhile, data in Australia shows that employment eased on 22 August last month, while business confidence increased but remained fragile last month.
Japan’s economy grew at an annualized 28.1% in April-June, worse than the initial estimate of a 27.8% contraction, the Cabinet Office’s revised figures showed on Tuesday.
Final European GDP figures are due later in the day.