By Kevin Plumberg
NEW YORK, Feb 4 (Reuters) - The dollar slipped against the euro and edged up
against the yen on Monday as investors waited to see how major central banks at
policy meetings this week will respond to a potential global economic
The Reserve Bank of Australia, the Bank of England and the European Central
Bank are all due to meet, and dealers will be focusing on whether they are
concerned about the severity of the U.S. slowdown and whether it will affect
If all those banks warn about slowing conditions down the road, then
investors' willingness to take risks could suffer, hurting higher-yielding
currencies such as the Australian dollar and helping low-yielding units like the
"The Australian dollar, New Zealand dollar and sterling have all rallied on
the improved outlook for leveraged trades, though the Australian dollar may be
the only currency to sustain the move higher as the Reserve Bank of Australia
will likely be the only central bank to follow the market's expectations with
another rate hike," said Mark Frey, chief dealer with Custom House in Victoria,
By late afternoon, the euro climbed 0.2 percent to $1.4830 <EUR=>,
largely driven by gains in the euro against the yen and profit-taking on the
dollar's burst of strength on Friday.
The dollar ticked up 0.1 percent to 106.73 yen <JPY=>.
The Australian dollar rose 0.6 percent to US$0.9090 after earlier touching a
near three-month high of US$0.9100 <AUD=>.
The British pound gained 0.4 percent to $1.9740 <GBP=>.
Uncertainty continued to rule the U.S. dollar after it was whipsawed last
week by another hefty interest rate cut from the Federal Reserve, weak data on
U.S. growth and jobs and a surprisingly robust manufacturing report.
For now investors were not letting that uncertainty stop them from keeping
their carry trades, in which a low-yielding currency such as the yen is borrowed
in order to buy higher-yielding assets in other currencies.
"There's some appetite out there for carry trades," said Andrew Busch, a
global foreign exchange strategist at Bank of Montreal in Chicago. "Unless we
see really negative news or stocks plunging, people will still favor carry
WILL EURO BEARS AWAKEN?
Since the credit crisis flared up last summer, European Central Bank
officials have kept their focus on containing inflation and played down the risk
of a growth slowdown.
However, some analysts do not think that the euro zone can escape from the
knock-on effects of the slowing U.S. economy.
"The increased depth and breadth of the U.S. slowdown spells trouble for
major economies and strains in the euro area may become more evident," said
CitiFX strategists in a note.
"Given the surprising degree of ECB hawkishness and the potential for
relatively sharp declines in euro area yields, there is risk that catch-up may
trigger a short-term correction from euro/dollar," they said.
The RBA is expected to raise Australian rates on Tuesday, while the ECB is
expected to keep rates on hold and the Bank of England will likely lower
borrowing costs on Thursday. Sterling firmed broadly in a snap-back from heavy
selling on Friday.
The Fed has already slashed its benchmark interest rate by 1.25 percentage
points in the last two weeks, the biggest move in that time frame since the U.S.
central bank began using the fed funds rate as its primary policy tool in the
early 1990s. (Editing by Andrea Ricci)