Dollar mixed ahead of central bank announcements

The dollar was mixed Tuesday amid major bank restructurings in Europe, while U.S. factory orders rebounded and investors looked ahead to central bank meetings in the U.S. and Europe this week.

In late New York trading Tuesday, the 16-nation euro fell to $1.4702 from $1.4753 late Monday. The British pound edged up to $1.6402 from $1.6383, while the dollar was barely changed at 90.32 Japanese yen compared with 90.35 yen.

On Tuesday, two British banks announced huge capital raises, and their stocks dropped. Lloyd Banking Group PLC will try to raise at least 21 billion pounds ($34.1 billion) with a record-high share issuance and a debt swap. Royal Bank of Scotland Group PLC will get another 25.5 billion pounds from the government, whose stake in the company will rise to 84 percent from 70 percent.

Meanwhile, the Commerce Department said orders to U.S. factories rose in September, helped by strength in autos, heavy machinery and military aircraft. Demand increased for both durable goods, and nondurable goods such as chemicals and energy products.

In the U.S., stocks zigzagged in a tight range. The Dow Jones industrial average slipped to close 18 points lower, while broader indexes rose. Commodities rose broadly and gold jumped to a new high after India's central bank bought $6.7 billion worth of gold from the International Monetary Fund.

UBS AG currency analysts on Tuesday recommended selling euros and buying dollars, with a target exchange rate of $1.42. Upcoming economic data is likely to disappoint investors' expectations, said analyst Gareth Berry in a research note, while "there has been lots of concern from official quarters over local currency strength" against the dollar.

The Bank of England and European Central Bank meet later this week. Economists expect the ECB to hold its key interest rate at 1 percent. The Federal Reserve is expected to leave interest rates at their rock-bottom range near zero on Wednesday.

Investors will be keeping an eye on the Fed's language, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York. If the Fed removed the phrase "extended period" when it refers to "exceptionally low" levels of interest rates, that could signal an intent to boost rates sooner than previously thought, he said, which would fuel the dollar.

Woolfolk expects the Fed to start hiking in February or March. Most economists see it much later in the year, or not until 2011.

Woolfolk also said the ECB is not likely to raise rates before the Fed since the Europeans are afraid of further appreciation in the euro, which hurts its exports.

He sees the euro at $1.55 at the end of this year and $1.35 at the end of next year.

Ron Leven, currency strategist for Morgan Stanley in New York, said the Fed is unlikely to change its language, with stocks dropping before the decision and nervousness about how helpful the government's stimulus package is going to be next year.

In other trading, the dollar fell to 1.0677 Canadian dollars from 1.0791 late Monday, but rose to 1.0274 Swiss francs from 1.0236 francs.