Dollar’s Recovery Against Euro Slips

The dollar’s weeklong rally against the euro came to an abrupt halt Tuesday as investors started retesting Europe’s resolve over curbing the ascent of its currency.

In New York, the euro jumped to $1.257 from $1.238 on Friday. U.S. markets had been closed Monday in observance of Martin Luther King Day.

The British pound and Australian dollar also rallied. So did the Canadian dollar, even though the Bank of Canada trimmed its benchmark short-term interest rate for the third time in seven months.

The euro, which through Jan. 9 had risen for nine consecutive weeks against the dollar, stumbled last week from a record high of $1.28 after some European finance authorities began to signal that they were fed up with their currency’s surge.

The euro has hurt many European exporters by raising their products’ costs abroad.

But a statement on Monday from European finance ministers and European Central Bank authorities was viewed as lacking resolve. They stressed the need for “stability” in exchange rates. Currency traders jumped on the report, selling dollars and buying euros.

“I think the European finance ministers had an opportunity on Monday to scare off bullish euro investors by threatening intervention or [interest] rate cuts to undo euro strength,” said J.P. Morgan Chase currency strategist Rebecca Patterson in New York. “They missed that opportunity.”

Also helping to support the euro: On Tuesday, European Central Bank Economist Otmar Issing said Europe’s recovery remains on track despite the strong euro’s effect on exports.

He also said the bank’s key interest rate is likely to remain stable at 2% for the time being. If the ECB were to lower interest rates, it could make euro-denominated assets less appealing.

But lower rates didn’t hold back the Canadian dollar on Tuesday. It was valued at 77.4 U.S. cents in New York, up from 77 cents on Friday, despite the Bank of Canada’s decision to cut its key rate to 2.50% from 2.75%.

The bank indicated it was trying to offset some of the damage done to the nation’s companies because of the Canadian dollar’s strength in the last year.

The key short-term rates of the ECB and Canada still are well above the U.S. Federal Reserve’s benchmark rate of 1%.