Dollar stands close to two-week high, euro remains wobbly ahead of ECB meet

The dollar stood close to a two-week high against key peers on Tuesday, shored up by a resilient U.S. economy and a flagging euro ahead of a 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 remained wobbly before the ECB meeting on Thursday. The ECB is facing growing pressure to address how to protect the euro zone economy from a protracted slowdown. In contrast, the dollar has enjoyed some support from higher U.S. Treasury yields as recent data, including U.S. fourth-quarter gross domestic product, has eased fears of a potentially rapid loss in economic momentum.

The dollar index versus a group of six major currencies was 0.05 per cent higher at 96.726 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 dipped 0.1 per cent to $1.1326. It had brushed an 11-day low of $1.1309 on Monday.

"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," said Shin Kadota, senior strategist at Barclays. The dollar rose 0.15 percent to 111.92 yen, bouncing back from losses suffered the previous day. Against a broadly firmer greenback, the Australian dollar was down 0.2 percent at $0.7077, cancelling out modest gains made overnight on expectations for further easing of trade tensions between the United States and China.

The Australian dollar sagged after Tuesday's Caixin/Markit China purchasing managers' index (PMI) showed the services sector in the world's second largest economy easing to a four-month low. The currency is sensitive to developments in China, Australia's main trading partner. The Aussie briefly ticked up after the Reserve Bank of Australia left interest rates unchanged at 1.5 percent as widely expected on Tuesday.

"The currency got some lift as the RBA refrained from taking an even more dovish stance. The focal point, however, is still on potential easing by the RBA and the Australian dollar remains on the defensive," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo. The Australian dollar took 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.)