Reuters: US Dollar Report: FOREX-Dollar near 3-week low as it falls prey to dovish Fed

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FOREX-Dollar near 3-week low as it falls prey to dovish Fed Apr 26th 2012, 03:16 Wed Apr 25, 2012 11:16pm EDT * Dollar struggles at 3-week lows vs basket of currencies * Euro tackles major retracement levels * Yen keeps eye on BOJ policy meeting on Friday * NZD undermined after RBNZ's attempt to talk down currency By Hideyuki Sano TOKYO, April 26 (Reuters) - The U.S. dollar floundered at three-week lows against a basket of major currencies on Thursday, after the Federal Reserve did little to alter the perception that the central bank will be deeply committed to a dovish policy stance. While the Fed's policy meeting turned out to be a bit of an anti-climax to many market players, the fall in euro zone sovereign yield spreads overnight also helped to push the euro up above its peak last week to test major resistance levels. The dollar index stood at 79.063, having fallen as low as 78.995 after Fed Chairman Ben Bernanke said the central bank would not hesitate to launch another round of bond buying if the economy needed it. The Fed has previously engaged in two rounds of asset purchases totaling $2.3 trillion, known as quantitative easing, to drive down interest rates and stimulate the economy. "Despite its projections that GDP growth will pick up, the FOMC expects unemployment to remain well above target by the end of 2014. This means that there is scope for further monetary easing down the road, especially if the recovery falters," said Philip Marey, strategist at Rabobank. Fresh projections released by the Fed also showed support for a rate hike before 2014 among policymakers did not increase from January, disappointing dollar bulls who had hoped that the projections could trigger expectations of an earlier exit from easy policy. This saw the euro hit a three-week high of $1.3234, near major resistance around $1.3240, which is a 50 percent retracement of its decline from late Feb to Apr. 16 and a 61.8 percent of its decline from the March 27 peak to the same low. A break of that level could bring into focus a band of resistance at $1.3370/90 seen in late March and early April. It last stood at $1.3227. Debt yields of Spain and France eased sharply from recent highs on Wednesday, although Italian debt had less luck due to caution ahead of a debt auction by Italy on Friday. The dollar fetched 81.23 yen, down slightly from last U.S. levels, but stayed in a 80.30/81.80 range seen in the past few sessions ahead of the BOJ's policy meeting on Friday. The Japanese currency is unlikely to make much headway ahead of the meeting. Sources familiar with the central bank's thinking, said the BOJ is likely to ease monetary policy on Friday by boosting asset purchases by up to 10 trillion yen ($123 billion). Meanwhile, the New Zealand dollar slipped 0.2 percent to $0.8144, after RBNZ Governor Alan Bollard said the local dollar was still high despite recent falls in commodity prices, and warned that would influence future policy. Earlier it had popped to a high of $0.8176 as the markets covered short positions after the Reserve Bank of New Zealand kept rates unchanged at a record low 2.5 percent as expected. Rate markets were now pricing in a one-in-five chance of a cut at the next RBNZ meeting and 7 basis points of easing over the next 12 months. The Australian dollar was spared much of the drama, holding at $1.0361. It has risen in the past two sessions from a low of $1.0247, hit after tame inflation data cleared the way for a rate cut next week. Link this Share this Digg this Email Reprints

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