NEW YORK (Reuters) - The U.S. dollar was steady against the euro on Tuesday, holding in its recent tight range, before the European Central Bank on Thursday is expected to cut interest rates deeper into negative territory and possibly restart asset purchases.
Investors are weighing whether further monetary stimulus will be effective in countering economic weakness in the euro zone, and whether the ECB will disappoint dovish expectations baked into the market.
“People are waiting on the ECB, that’s really the big event this week,” said Erik Nelson, a currency strategist at Wells Fargo in New York. But, “given some of the push-back we’ve seen from the hawks on the board, we could easily see a disappointing outcome.”
ECB policymakers are leaning toward a stimulus package that includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, five sources familiar with the discussion said last week.
Many also favor restarting asset buys, but opposition from some northern European countries is complicating this issue.
The dollar was little changed against the single currency <EUR=> at $1.1045. It has traded in a tight range between $1.1014 and $1.1084 for four days.
The euro got a temporary boost on Monday on a Reuters report that Germany is considering the creation of a "shadow budget" that would enable Berlin to boost public investment beyond the restrictions of constitutionally enshrined debt rules.
Germany can counter a possible economic crisis by injecting "many, many billions of euros" into the economy, Finance Minister Olaf Scholz said on Tuesday.
German Chancellor Angela Merkel, however, said on Tuesday her government was sticking to its balanced budget policy.
The Japanese yen <JPY=> weakened to its lowest level against the greenback since Aug. 2 after Reuters reported that Bank of Japan policymakers are more open to discussing the possibility of expanding stimulus at their board meeting on Sept. 18-19 as the fallout from the U.S.-China trade war spreads.
Demand for the safe-haven currency has also dropped since China and the United States on Thursday agreed to hold high-level talks in early October, boosting risk sentiment.
In the United States, consumer price inflation data on Thursday and retail sales data on Friday are the main economic focus. They will follow a jobs report last Friday that showed U.S. jobs growth slowed more than expected in August.
The Federal Reserve is expected to cut rates when it meets on Sept. 17-18.
(Reporting by Karen Brettell; editing by Jonathan Oatis and Dan Grebler)
