Dollar hangs on as traders turn to ECB; Brexit wobbles hit sterling

The dollar held on to small overnight gains on Tuesday as investors weighed whether an accommodative turn from the European Central Bank later this week could hit the euro, while the pound nursed losses due to Brexit uncertainty.

In thin holiday trade the greenback had edged 0.2% higher against a basket of currencies (=USD) and rose by roughly the same margin against the euro (EUR=EBS) to $1.1816.

Moves early in the Asian day were modest, but had the dollar back under gentle pressure as risk appetite appeared to return to equity markets.

Most analysts don't expect a change in the bank's policy stance but are looking to the message on its inflation forecasts and whether it seems concerned by the euro's strength.

The meeting comes after the euro marked a two-year high just above $1.20 at the beginning of the month, until comments about its level from ECB chief economist Philip Lane knocked it lower.

“The ECB could raise more concerns over a further appreciation in the euro and make some downward revisions to its inflation projections,” said Commonwealth Bank of Australia currency analyst Kim Mundy, which would flag easier policy.