Dollar gives up ground
The greenback slides as the risk-aversion trade slows and ahead of announcements from the ECB and Bank of England.
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| Click on the chart to see other currencies. |
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| Click on the chart to see other currencies. |
NEW YORK (CNNMoney.com) -- The dollar lost ground against major currencies Tuesday as Wall Street stayed calm ahead of two central bank monetary-policy decisions.
The euro was up 0.8% at $1.2949 from $1.2844 late in the day Monday.
The pound rallied 0.6% at $1.4349 from $1.4265.
And the dollar bought 0.2% fewer Japanese yen, at ¥89.28 down from ¥89.44.
The greenback has been a safe haven for investors when other parts of the marketplace became tumultuous. "The big theme still is about risk-aversion trade," said Amo Sahota, currency strategist at HiFX in San Francisco.
"I don't think the risk-aversion trade has gone away - it is way too premature to say that. The market is just taking a breather," he added.
Tuesday, the Dow, Nasdaq and S&P were all little changed. "Because equities are remaining steady, the dollar has decided not to make a major move today on the positive side," said Sahota.
Sahota said the currency markets are waiting for some of the more major economic reports due out at the end of the week, including factory orders due out on Thursday and the government's unemployment report due out Friday.
Central bank rate cuts: Currency markets are also anticipating monetary policy announcements from both the European Central Bank and the Bank of England.
The ECB's key interest rate is at 2%, and the euro zone central bank is widely expected to keep its rate unchanged.
According to Sahota, the ECB "wants to remain on hold as long as possible," even though other market participants tend to disagree with that position.
The Bank of England's key lending rate was 1.5% and the bank was largely expected to lower its lending rate. Typically, a currency loses value when a central bank cuts a key lending rate because that pumps more of the currency into the system.
In this economy, the rule does not hold. Rather, central bank action has been seen as supportive of the economy and by extension the nation's currency. "The market is viewing central bank easing of monetary policy as a positive for the economy because they are trying to stimulate," said Sahota.
If the Bank of England were to go against market expectation and raise rates, Sahota said that in the current economic environment, the rate cut would probably hurt the pound.
"The ECB will be more the focus point that the Bank of England," said Sahota, because the currency market is looking for an explanation of what the ECB has been thinking to keep rates elevated. 
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