Dollar recovers from 3-week low
NEW YORK (MarketWatch) -- The dollar erased most of its losses late Friday after the euro briefly jumped following more comments from European Central Bank President Mario Draghi about policy options he's considering.
The dollar had been under pressure after German Chancellor Angela Merkel and French President Francois Hollande released a joint statement saying they were determined to do everything possible to protect the euro zone.
The euro (EURUSD) jumped to $1.2389, before falling back to $1.2320, up slightly from $1.2284 late Thursday in North America.
The ICE dollar index (DXY) , which tracks the greenback against a basket of major currencies, fell as low as 82.343, then pared losses to 82.636 from late Thursday's 82.834.
It's still near its lowest level in three weeks. The index hasn't closed under 82.800 since July 5.
According to The Wall Street Journal, Draghi wants to discuss purchases of sovereign bonds by the central bank simultaneously with the euro-zone rescue fund. Other media reports said Draghi is considering another long-term refinancing operation.
But which option the ECB chooses, if any, makes a huge difference for the currency, whereas stocks just want to see some action taken, said Alan Ruskin, head of foreign-exchange strategy at Deutsche Bank.
The euro "is being caught between balance sheet [expansion] and particularly the rate cut being negative for the euro, and the obvious positive euro implications of policymakers trying harder to find a comprehensive solution," said Alan Ruskin, head of foreign-exchange strategy at Deutsche Bank.
Earlier comments from Merkel and Hollande boosted investors' appetite for riskier assets like stocks and lessened demand for the relative safe-haven status of the dollar and Treasury bonds.
U.S. data and the Fed
The dollar briefly rose after the Commerce Department said U.S. gross domestic product rose at a 1.5% clip in the second quarter. Economists surveyed by MarketWatch had forecast the economy to expand by 1.3%, so the data staved off concerns that the Federal Reserve may soon have to ease monetary policy further. Read story on U.S. GDP.
Still, that's a slowdown from a revised 2% rate in the first quarter.
The Fed's policy-setting Open Market Committee meeting next week was already widely seen as coming too early to expect any major action from the U.S. central bank, such as a third massive round of bond purchases known as quantitative easing.
"The GDP data was at the margin fractionally stronger than expected and plays perfectly to the pre-release thinking that the Fed can wait for more clarity on the economy from the next two employment reports before enacting (or not) additional QE measures at the September FOMC meeting," Ruskin wrote in an earlier note.
Declines in the euro are likely to be limited, however, as "European headlines have been consistently risk positive," he said.
Traders reverse bets
The euro was up before the data as traders continued to reverse bets against the shared currency on hopes of action by the European Central Bank. The ECB chief, Mario Draghi, a day earlier had pledged to do what's needed to preserve the euro. Read more on Draghi, euro.
But despite the market moves, some analysts remained skeptical of any major impending action from the ECB.
The Bundesbank on Friday said it remained opposed to any further bond purchases by the ECB but would be fine with purchases by the euro zone's rescue funds, Dow Jones Newswires reported.
"If the better sentiment on the single currency is going to have any chance of being maintained, then two things need to happen,"said Simon Smith, chief economist at FxPro in London.
"First, Draghi is going to have to follow through on his words of yesterday. Secondly, the ECB is going to have to do so in a way that offers reassurance to the private sector that debt holders will not be the ones shouldering the burden."
The French daily Le Monde, meanwhile, reported that the ECB and euro-zone governments were working on a plan that would see the rescue fund buy Spanish and Italian government bonds in the primary market, while the ECB would resume secondary-market purchases.
For the week, the dollar index has lost 0.9%.
The euro is up 1.3% from last Friday, after falling in the prior three weeks.
The dollar also improved versus other major currencies, with the British pound (GBPUSD) rose to $1.5728 from $1.5685 late Thursday. Sterling has advanced 0.7% from a week ago.
The Japanese yen -- also considered a safe haven -- turned down, with the dollar (USDJPY) rising to ¥78513 from ¥78.29. It's little changed on the week.
The Australian dollar (AUDUSD) bought $1.0474, up from $1.0396. For the week, it's up 0.7%.
The WSJ dollar index (BUXX) , a new benchmark tracking the greenback against the most heavily traded global currencies, pared losses to 71.73 from 71.85.