SYDNEY: The euro stayed on the backfoot in Asia on Tuesday after Standard & Poor's said it was reviewing the credit ratings of euro zone countries, including top-rated Germany, for a possible downgrade.
The announcement from S&P, which confirmed earlier media reports, saw only limited reaction from the euro. The common currency last stood at $1.3400, versus $1.3385 late in New York. It has steadily slipped from a peak around $1.3486 on Monday.
Still, the euro stayed well within Friday's trading range in what traders call an inside-day. This usually indicates a lack of market conviction, not surprising given major events loom including the European Central Bank meeting on Thursday.
"In addition to a 25-basis-point cut with hints of further actions, we expect the ECB to provide additional support to banks in the form of a softening of collateral rules and more and longer liquidity operations," said Giuseppe Maraffino, strategist at BNP Paribas in London.
The ratings news piled more pressure on EU leaders to come up with a credible plan on Friday to lead the region out of its debt crisis. S&P said it would announce the review outcome as soon as possible after the Dec. 8-9 EU summit.
Hopes for more fiscal integration in the euro zone were boosted after France and Germany on Monday agreed an over-arching plan for imposing budget discipline across the region in the search for a solution to its debt crisis.
With the euro's downside limited, the dollar index struggled to make much headway. It drifted down 0.05 percent to 78.583. Against the yen, the dollar edged up to 77.80, but was still capped by 78.00 yen.
Commodity currencies outperformed the euro with the Australian dollar holding up pretty well. It was at $1.0263, having risen as high as $1.0305 overnight.
The Aussie also had an inside-day on Monday, with resistance seen at $1.0335, last week's peak.
All eyes are on the outcome of the Reserve Bank of Australia's policy meeting due at 0330 GMT. A small majority of economists in a Reuters poll expect the central bank will cut by 25 basis points to 4.25 percent.
"The balance of risk has shifted as global developments have been encouraging. Nonetheless, a weaker AUD would give the RBA some insurance against current uncertainties and the odds are for a cut," said Sebastien Galy, strategist at Societe Generale.
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