By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar lost ground Thursday, with the euro maintaining a small gain on the greenback and scoring a bigger edge against the Swiss franc as European leaders prepared to meet in Brussels.
The dollar index (DXY 80.36, +0.10, +0.13%) , a measure of the U.S. unit’s performance against a basket of six other currencies, slipped to 80.088, down from 80.190 on Wednesday.
The euro (EURUSD 1.3186, -0.0023, -0.1741%) rose to $1.3241, from $1.3229 in late North American trading Wednesday.
Traders trimmed earlier gains in the single currency, however, after Spain’s auction of 10- and 15-year bonds saw a sharp, but not unexpected, rise in borrowing costs. Read about Spain's bond auction.
For the euro, the main event is likely to be the two-day summit of European Union leaders that begins Thursday in Brussels.
“The relative resilience of the euro to the credit-ratings downgrade in Belgium, a ratings warning for Spain and a government in Italy which is probably unworkable in its present form suggest there is a large degree of optimism in the market that EMU [economic and monetary union] will survive the sovereign-debt crisis,” said Jane Foley, senior currency strategist at Rabobank.
Foley said the combination of emergency funding by the European Central Bank for euro-zone commercial banks and EU-International Monetary Fund support for Greece and Ireland has helped euro bulls buy time.
There is unlikely to be agreement on selling bonds backed by the region, increasing funding for the emergency fund or having that fund purchase bonds, said strategists at Brown Brothers Harriman.
“There may be agreement on new funding for the ECB,” said Marc Chandler, global head of currency strategy at Brown Brothers. “This year will finish without a clear and convincing strategy to address the debt crisis, which will be a major force into next year.”
The dollar stayed lower after a pair of U.S. economic reports showed jobless claims slipped in the latest week, continuing a positive trend, and housing starts improved last month. Read about U.S. housing starts. See story on jobless claims.
British pound, Swiss franc
The British pound (USDGBP 0.6335, +0.0029, +0.4599%) rose 0.4% to $1.613.
The Office for National Statistics said retail sales rose 0.3% in November, slightly below the forecast for a 0.4% rise.
Against the Japanese yen, the dollar (USDYEN 84.3700, +0.1400, +0.1662%) traded at 84.24 yen, from ¥84.32 late Wednesday.
The euro pared earlier gains to rise 0.4% on the Swiss franc (EURCHF 1.2828, +0.0045, +0.3519%) to trade at 1.2836 francs. The euro earlier this month fell to an all-time low versus the franc.
The Swiss National Bank on Thursday left its key lending rate unchanged, as expected, but warned that it was prepared to take action if needed to avert any deflation threats. Economists said the central bank’s statement was a warning that it stands ready to resume currency intervention to weaken the franc if necessary.
The Swiss National Bank had previously undertaken intervention to stem the franc’s rise against the euro with limited success.
