Dollar dips ahead of ECB decision, Greece moves

(AP) — The dollar dipped Tuesday after a report on the U.S. housing market showed some improvement, sparking interest in riskier trades, while worries over Greece's debt problems eased slightly.

Trading kept in a tight range as investors looked ahead to the European Commission statement on the Greek budget later Wednesday and the European Central Bank's policy statement on Thursday.

Investors are increasingly expecting some form of aid for Greece, helping calm fears of a default by the heavily-indebted country that could overwhelm bond markets and the eurozone's stability.

In the U.S., the National Association of Realtors said the number of people preparing to buy a home in the United States rose slightly in December, a sign that home sales could be stabilizing heading into the spring home buying season.

That news followed several reports Monday indicating that the U.S. economic recovery is on better footing than many had believed, pushing the dollar down as investors dumped the low-yielding currency for riskier bets.

In late New York trading Tuesday, the 16-nation euro edged up to $1.3964 from $1.3923 late Monday. The euro had dropped to $1.3854 in Monday trading, its lowest point since mid-July.

Meanwhile, the British pound edged up to $1.5978 on Tuesday from $1.5961, while the dollar fell to 90.38 Japanese yen from 90.63 yen late Monday.

The euro has been weakened by concerns over the debt carried by Greece, Portugal and other European economies.

Greek Prime Minister George Papandreou on Tuesday expanded plans to significantly cut the country's budget, a day before the European Commission is set to assess the Greek deficit reduction plan.

Greek and European officials have said they are confident that the country will manage to curb its budget gap and that a European Union bailout of the country to prevent a default won't be necessary. However many expect Greece to receive some kind of aid.

"The Europeans in some form or other are going to have to come to the Greek rescue," said Joseph Trevisani, chief market analyst of FXSolutions. "They don't really have any choice."

If they didn't, problems in the debt markets could become "untenable," he said. The feeling that the EU will step in has helped bring down yields on Greek bonds, he said. Very high yields are a sign of investor worry over default.

"The government of Greece will continue to deny it needs any help from the EU — while at the same time the EU will be quietly providing emergency funding if and when needed," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp. in New York.

Analysts, meanwhile, are widely expecting the ECB to keep interest rates unchanged at 1 percent when it meets Thursday. ECB President Jean-Claude Trichet isn't likely to make any major moves until the Greece crisis is resolved, Trevisani said.

Low interest rates can weigh down a currency as investors move funds to others that have higher yields. The U.S. has one of the lowest official interest rates of the major economies, and many emerging-market countries have substantially higher rates. The ECB's rate is also higher than the U.S. federal funds rate of near zero.

Meanwhile, Australia's central bank left its key interest rate unchanged at 3.75 percent on Tuesday, surprising investors and analysts who had predicted the bank would continue raising the rate as the nation's economy rebounds.

The Australian dollar fell to 88.56 U.S. cents from 89.10 cents in trading Tuesday in New York.

In other trading, the dollar slid to 1.0596 Canadian dollars from 1.0634 Canadian dollars late Monday, and fell to 1.0551 Swiss francs from 1.0576 francs.

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AP Business Writers Erin Conroy and Derek Gatopoulos contributed to this report.