The dollar held near a 10-week low against a basket of currencies on Wednesday, with the market looking for confirmation from the Federal Reserve later in the day that its focus remains on supporting growth. The perception that the Fed will keep a much easier policy than the European Central Bank, which is growing worried about inflation, has helped the euro to extend its recovery after a two-month drubbing from worries over eurozone debt.
The dollar extended losses for a fourth day, after US bond yields fell on news of President Barack Obama's proposal to freeze portions of federal spending in his State of Union address. The dollar index against a basket of major currencies dipped to 77.864, just a hair above a 10-week low of 77.814 hit earlier in the week. The euro also benefited from strong demand for the inaugural bonds from Europe's financial rescue fund on Tuesday.
The euro stood at $1.3685, near a two-month high of $1.3705 hit on Tuesday and within sight of a 61.8 percent retracement of its November-January fall, around $1.3740. Beyond that, its November 22 high of $1.3786 is seen as a major target. Since hitting a four-month low of $1.2860 on January 10, the euro has posted substantial losses only one day and is due for a correction, said Masato Chin, president of Chin Associates.
The British pound recouped early losses but remained shaky after an unexpected contraction in the UK economy in the fourth quarter prompted investors to scale back expectations of a rate hike by the Bank of England. The pound fetched $1.5822, flat on the day. It had fallen as low as $1.5750 on Tuesday. Against the resurgent euro, the pound was near a 2-1/2-month low of 0.86695 per euro hit on Tuesday. It last traded at 0.8652. The dollar slipped about 0.2 percent against the yen to 82.05 yen, not far from last week's two-week low of 81.85 yen.
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