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Dollar rally takes a pause

Tuesday, August 26 09:15:24

The dollar took a breather on Tuesday after recent gains, but that offered little solace to a struggling euro that was pinned down near 19-month lows against the Swiss franc on expectations of a soft inflation reading and more monetary easing.

Data showing German business sentiment sagging for the fourth month running, and the resignation of the French government following a row over fiscal policy, added to the bearish mix for the euro.

The single currency was trading at 1.20775, having fallen to 1.2072 Swiss francs on Monday, its lowest since early January 2013 on trading platform EBS, with the market close to testing the Swiss National Bank's three-year old pledge to cap its currency at 1.20 per euro.

Against the dollar, the euro was at $1.3202, having dropped to $1.3178 in Asian trade. Hot on the heels of dovish comments from the head of the ECB at the weekend, a report released on Monday showed German business sentiment sagged for a fourth month running.

Investors await euro zone inflation data on Friday. Analysts polled by Reuters expect annual inflation to have slowed to 0.3 percent in August from 0.4 percent in July. That is well below the ECB's danger zone of 1.0 percent and its target of just under 2.0 percent.

Late on Friday, in stronger language than he has used in the past, ECB President Mario Draghi said the ECB was prepared to respond with all its "available" tools should inflation drop further.

Those comments have triggered speculation that the ECB may be prepared to ease policy further, driving bond yields to lows. (Reuters)

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