SINGAPORE/SYDNEY: Renewed concerns about the euro zone sovereign debt crisis weighed on the single currency on Wednesday, while the dollar also struggled after minutes of the US Federal Reserve's Aug. 9 meeting bolstered expectations for more stimulus.
The dollar and the euro both dipped against the yen, as Japanese exporters bought the currency.
The euro remained under pressure after lukewarm demand at an Italian bond auction threatened to push the euro zone's third biggest economy back to the centre of the region's debt crisis.
Adding to the gloom, data showed euro zone economic sentiment fell more than expected in August and a dispute over Finland's demand for collateral in exchange for bailout loans to Greece continued to fester.
"It keeps coming back and it's going to be with us a bit longer. But the issue for the next 20 hours or so will be funds adjusting their hedge ratios, which a fair few of them do at the end of each month," said Joseph Capurso, currency strategist at Commonwealth Bank.
Capurso said these adjustments could see dips in the euro and the Australian dollar and that could create some buying opportunities in the Aussie.
The euro held steady at $1.4435 , having a hard time regaining ground after dipping 0.5 percent on Tuesday. Small sell orders are seen starting from $1.4480, traders said.
Against the Australian dollar, the euro dipped 0.2 percent to A$1.3495 , hovering near a 3-1/2 week low around A$1.3476 hit on Tuesday.
Weakness in the euro helped the dollar index pop back up from Tuesday's low of 73.611. The dollar index, which measures the dollar's value against a basket of currencies, last stood at 73.973, on track for a 0.1 percent gain in August.
A slide in global equities on worries about the uncertain outlook for the US and global economies, as well as concerns about the impact of the euro zone's sovereign debt crisis on the European banking sector, caused a rise in risk aversion and has lent support to the greenback this month.
But the dollar's upside has been limited due to growing market speculation about further monetary easing by the Fed.
Minutes of the Fed's early August meeting released on Tuesday showed policymakers discussed a range of unusual tools they could use to help the economy, with some actually pressuring for bold new steps to shore up a flagging recovery.
This added to expectations the Fed may spring into action at the next meeting in September, which Fed Chairman Ben Bernanke on Friday said would be extended to a two-day meeting. Any moves to inject more liquidity would only serve to cement the dollar's status as a funding currency in carry trades.
"In the run up to the September FOMC, we're probably going to have a bit more chatter about QE3...which is likely to keep the dollar weak," said Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore.
Such market chatter might even help the euro break above its recent range of roughly between $1.4150 and $1.4550, he said.
"I would say I'm 60-40 or 70-30 in favour of an upside break (by the euro)," Robinson said.
JAPANESE EXPORTERS
Yen-buying by Japanese exporters helped lift the Japanese currency, traders said.
The dollar dipped 0.2 percent to 76.57 yen , but was seen supported by dollar bids at levels around 76.50 yen from Asian players. The euro slipped 0.3 percent to 110.53 yen , with support on the daily Ichimoku chart coming in right around 110.48 yen.
With the yen hovering near a record high against the dollar of 75.941 yen hit earlier in August on trading platform EBS, market players remain wary of the potential for yen-selling intervention by Japanese authorities.
Commodity currencies were underpinned by the growing prospect of further monetary easing by the US Federal Reserve. The Australian dollar rose 0.2 percent to $1.0695 , near its highest in more than three weeks of $1.0721 hit on Tuesday.
Trading is expected to be volatile in the lead up to the influential US non-farm payrolls data on Friday, with volumes staying patchy in the final week of the northern-hemisphere summer holidays and into the US Labor Day holiday on Sept. 5.
Weaker-than-expected headlines will no doubt boost expectations for the Fed to act at the September 20-21 meeting.
Copyright Reuters, 2011
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