Dollar recovers from four-month low
SAN FRANCISCO (MarketWatch) -- The dollar rebounded somewhat Monday, stepping back from a four-month low against a basket of currencies as attention turned to a German court ruling and Federal Reserve meeting this week.
The ICE dollar index (DXY) , which tracks the greenback against six major currencies, rose to 80.408 from 80.182 in late North American trading on Friday. That was its lowest closing level since early May, according to FactSet.
The euro (EURUSD) slipped to $1.2764, down from $1.2810 at the end of last week.
Attention in Europe is largely focused on a decision to be rendered Wednesday by Germany's constitutional court regarding challenges to the country's participation in the European Stability Mechanism, or the ESM. Read more about the German court ruling.
The court is widely expected to approve the ESM, but with conditions added that would call for tough parliamentary oversight. Also Wednesday, Dutch voters go to the polls.
"We are seeing a very normal pullback after the sharp move higher that we saw on Thursday and Friday of last week," said Kathleen Brooks, research director at Forex.com. The move "does not suggest that the euro-risk rally has run out of steam yet."
"If [Germany's] constitutional court votes that the ESM is legal as we expect and if the Liberals win in the Netherlands, then we could see the euro-dollar get over the $1.2885 mark," which is the 200-day smooth moving average, she added.
The euro rose last week as the European Central Bank detailed its latest bond-buying plan.
Last Thursday, ECB chief Mario Draghi laid out details of a plan for so-called Outright Monetary Transactions, under which the central bank could make potentially unlimited purchases of government bonds from distressed countries in concert with the euro zone's rescue fund. See story on ECB's plan to buy bonds.
U.S. data, Fed
The dollar fell more at the end of last week after a poor report on U.S. jobs triggered more speculation that the Federal Reserve would undertake further bond purchases to boost the largest global economy.
The Fed's policy-setting committee meets this week and is expected to announce a decision Thursday.
"The overriding force in foreign exchange for the next five days and to start the week will be the impact of the Federal Open Market Committee rate decision on the U.S. dollar," according to Crédit Agricole strategists.
"It will be important to watch for real money and central-bank diversification away from the U.S. dollar for clues as to the degree of confidence in what the Fed is likely to do," they said.
The British pound (GBPUSD) traded at $1.5995, little changed from $1.6005 Friday.
Against the Japanese yen (USDJPY) , the dollar bought ¥78.31, also little changed from ¥78.25 Friday.
Japanese economic data out Monday included a downward revision to gross domestic product for the second quarter, while separate data showed the nation's current-account surplus widening despite a trade deficit. Read more on Japan cutting GDP.
Also Monday, the Australian dollar (AUDUSD) pared losses to $1.0336, off from $1.0397.
The Australian currency was bolstered last week by signs that China was stepping up infrastructure spending.
However, weak Chinese data out over the weekend sharpened concerns about the health of the No. 2 global economy. See story on Chinese data.