Dollar floats 2-weeks high as rival Euro walks ahead of ECB meeting

The dollar held near a two-week high against its key rivals on Tuesday, underpinned by a resilient economy and a flagging euro ahead of an upcoming European Central Bank policy meeting.

Higher U.S. bond yields kept the dollar well bid, and though rates were off overnight peaks, traders bet the greenback had more going for it than some of its peers. The euro, in particular, remained wobbly before the ECB meeting on Thursday. The ECB is facing growing pressure to address how to protect the eurozone economy from a protracted slowdown.

In contrast, the dollar has enjoyed some support from higher U.S. Treasury yields as data, including fourth-quarter gross domestic product, eased fears of a potentially rapid loss in economic momentum. The dollar index versus a group of six major currencies was at 96.668 after going as high as 96.816 the previous day, its strongest since Feb. 19.

Although benchmark U.S. Treasury yields pulled back from peaks seen in late January, underlying demand for the dollar remained solid in a sign of confidence over the economic outlook. The euro was little changed at $1.1337 after shedding 0.25 per cent the previous day when it brushed an 11-day low of $1.1309.

While the dollar gained against the euro, it was on the defensive versus the yen as risk aversion in the equity markets supported the Japanese currency. Wall Street's major indexes fell on Monday. "The dollar firmed, stocks fell and U.S. Treasuries rose in the broader market, and we are bound to see the dollar gain against some currencies while slipping against others in such a situation," said Shin Kadota, senior strategist at Barclays.

The dollar was effectively flat at 111.81 yen after dipping 0.15 per cent on Tuesday. The yen often attracts bids in times of market volatility and political tensions. "The ECB meeting is unlikely to provide big surprises, but the euro is getting top heavy as the central bank, after all, is expected to strike a dovish tone," Kadota at Barclays said.

The Australian dollar was almost flat at $0.7089 after scraping out a 0.2 per cent gain overnight on expectations for further easing of trade tensions between the United States and China. The Aussie showed a limited reaction to a series of statements released at the opening of China's annual meeting of parliament on Tuesday. The currency is sensitive to developments in China, Australia's main trading partner.

The immediate focus was on the outcome of the Reserve Bank of Australia's (RBA) March policy meeting later on Tuesday. The Australian dollar had taken a big hit last month after the RBA stepped back from its long-standing tightening bias, saying the next move in rates could just as well be down as up. 

(With inputs from agencies.)