Euro Gets a Respite Ahead of Rate Decision

The euro steadied against most of its main rivals on Wednesday as caution ahead of tomorrow's European Central Bank offered a respite to the embattled single currency.
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The U.S. dollar posted slight losses against most of its major counterparts on Wednesday as mostly positive global stocks encouraged investor risk-taking. The euro was generally steady against its main rivals though still in sight of a four-year low against the greenback and yesterday's fresh record low against the Swiss franc. Investor caution ahead of tomorrow's European Central Bank meeting is also limiting the euro's movement. Although no change to the ECB's 1% benchmark rate is expected, market watchers will listen closely to the central bank president's post-meeting press conference for hints of any new measures to support the 16 nation economy.

Positive data out of Japan and China overnight helped to boost market confidence. Japanese machinery orders were four times better than forecast in April, while Chinese exports grew by 50% on the year in May. The Australian dollar cheered the data, particularly since China is the nation's top trading partner. Still, the Aussie's upside was somewhat capped by remarks by the governor of the Reserve Bank of Australia who expects Europe's debt problems to weigh on global growth, comments that reinforced expectations for steady Australian interest rates over the near term.

The Canadian dollar strengthened to highs for the week against the greenback as generally firmer global stocks bolstered the loonie. A near 1% jump in oil prices to around $73 a barrel also supported the Canadian currency. The next news on the local economy arrives Thursday when the Canadian trade balance and housing data are due out.

EUR

: The euro steadied against most of its main rivals on Wednesday as caution ahead of tomorrow's European Central Bank offered a respite to the embattled single currency. The ECB is widely expected to hold firm on its record low 1% benchmark lending rate. Investors are less certain on the type of tone the central bank president will strike at his post-meeting news conference. Market participants will listen closely to Jean-Claude Trichet's comments on the euro zone economy and watch for hints of any new measures to bolster growth in the region.

Nevertheless, the euro's downtrend is likely to remain intact, given the still unknown impact the bloc's sovereign debt crisis will have on the economy. The ECB will render its interest rate decision Thursday morning at 7:45 ET, followed by the central bank president's press conference 45 minutes later at 8:30 ET.

GBP

: The British pound recovered some of its losses from yesterday as higher European and British stocks offered support to the risk-sensitive U.K. currency. On Tuesday, the pound had fallen across the board after Fitch Ratings agency highlighted the tough road ahead for U.K. policymakers to tackle their budget deficit. Caution and uncertainty ahead of the release of the nation's emergency budget on June 22 is also gnawing at the sterling.

AUD

: The Australian dollar firmed against its U.S. rival on Wednesday, helped mostly by an improvement in market confidence. The Aussie dollar also found support from positive data overnight out of China. The world's third-largest economy reported that exports grew by 50% on an annual basis in May. The encouraging news on China's economy bodes well for Australia, a country that sends a considerable amount of its key resource exports China's way.

Still, the Aussie dollar's upside was generally kept in check by cautious remarks from RBA Governor Glenn Stevens. Mr. Stevens bolstered the view that further policy tightening was off the table when he said that the euro zone's debt problems are expected to dampen global economic activity.

USD

: The U.S. dollar eased slightly off Monday's 15-month peak against a basket of six major currencies as mostly higher global stocks curbed demand for safety. Federal Reserve Bank Chairman Ben S. Bernanke spoke on Capitol Hill this morning at 10 ET. Market watchers listened closely to his remarks to see if he sheds any light on when U.S. interest rates might head upward. A noted policy hawk, Kansas City Fed President Thomas Hoenig, shared his views recently that the U.S. recovery is sustainable enough to warrant a hike in U.S. interest rates. Mr. Hoenig is the same Fed policymaker who has voted in favor of dropping the central bank's low rate pledge for an "extended period."