NEW YORK (Reuters) - The euro slipped against the dollar and yen on Tuesday, undermined by weaker-than-expected German sentiment data and comments from European Central Bank officials that they were prepared to do more to support the region’s fragile recovery.
The data on Europe’s biggest economy came a day after ECB President Mario Draghi said the bank was ready to provide more long-term loans to keep money-market rates from rising.
Data from the Ifo think tank on Tuesday showed that German business morale improved slightly in September to touch a 17-month high, but the index fell short of the consensus forecast.
“The remarks from Mario Draghi were seemingly designed to push back against recent rises in area borrowing rates and the lift the euro received after the Federal Reserve last week stayed the course with monetary policy,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Draghi’s message was reinforced on Tuesday by Ewald Nowotny, a member of the ECB Governing Council, who said that it was too soon for the bank to go into exit mode from its crisis measures.
In late New York trading, the euro slipped 0.2 percent against the yen at 133.07 yen. It was also down 0.2 percent versus the dollar at $1.3471. Support was cited at the August high of $1.3453.
BNP Paribas estimates that the euro’s short-term fair value is at $1.3355.
The dollar edged up 0.2 percent against a basket of six currencies at 80.576 .DXY, but its outlook remained downbeat after the Fed last week decided to keep its asset purchases intact for now. The dollar index hit a seven-month trough of 80.06 last week.
New York Fed President William Dudley, a well-known dove and close ally of Fed Chairman Ben Bernanke, defended the central bank’s shock decision last week to keep its stimulus in place.
Dudley, in an interview on CNBC on Tuesday, said the economy was weaker than the Fed thought in June, but he “wouldn’t rule out” a cut in the central bank’s stimulus this year.
Bob Lynch, head of G10 FX strategy for the Americas at HSBC in New York, said the impact of the delay in the Fed’s tapering has been diminishing, which could be due partly to comments from Fed officials in the wake of last week’s policy decision.
Dallas Fed President Richard Fisher on Monday noted the closeness of the decision not to taper, which Lynch said suggests that tapering could happen at the Fed’s next policy meeting, at the end of October.
Markets are also concerned that a political showdown in Washington over the federal budget could result in a government shutdown, or, at the very extreme, a default on the U.S. government’s debt.
Falling U.S. Treasury yields have also diminished the appeal of the dollar to investors. Benchmark 10-year U.S. Treasury yields were last at around 2.66 percent, after hitting a near two-year high of 3.007 percent on September 5.
Against the yen, the dollar was down 0.1 percent at 98.76 yen.
U.S. data on Tuesday was mixed, but seemed to validate the Fed’s decision not to wind down bond-buying this month.
U.S. home prices gained in July. But a dip in consumer confidence this month underscored the potential for higher interest rates and a sluggish economy to dent the housing market recovery.
The New Zealand dollar was the biggest loser, falling 1.2 percent to $0.8268.
Kathy Lien, managing director at BK Asset Management in New York, attributed the fall to a statement from Fonterra Co-operative Group, New Zealand’s biggest dairy company, that earnings in the second half of the year will be significantly lower compared with the first half.
New Zealand is the world’s largest dairy exporter and weaker earnings from the country’s largest dairy company could weigh on the economy.
Additional reporting by Wanfeng Zhou; Editing by James Dalgleish