Reuters: US Dollar Report: FOREX-Dollar struggles as Fed retains stimulus option

Reuters: US Dollar Report Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

FOREX-Dollar struggles as Fed retains stimulus option Apr 26th 2012, 10:21 Thu Apr 26, 2012 6:21am EDT * Dollar drops to 3-week lows vs basket of currencies * Euro retreats from 3-week highs after sentiment data * Yen keeps eye on BOJ policy meeting on Friday * Canadian dollar, sterling advance to 7-mth peak vs USD By Anirban Nag LONDON, April 26 (Reuters) - The dollar fell to a three-week low against a basket of major currencies on Thursday and is likely to stay subdued after the Federal Reserve said it was ready to launch another round of bond buying if the U.S. economy weakens. But the euro pulled back after hitting a three-week high against the dollar after weaker-than-expected euro zone sentiment data reignited concerns about the region's economy. . Peripheral bond yields also rose, and with the threat of a political instability hanging over the euro zone, investors were keen to sell the common currency at higher levels. The dollar's weakness boosted the Canadian dollar and pushed the British pound to a seven-month high against the U.S. currency, a s the central banks of Canada and Britain - in contrast to the Fed - are seen moving away from further stimulus. The dollar index was at 79.005, having fallen as low as 78.823, its lowest since early April. The dollar is expected to continue struggling after Chairman Ben Bernanke said the Fed would not hesitate to resume asset purchases if necessary and could be spurred into taking action if the U.S. unemployment rate failed to keep falling. The Fed's bond-buying programme is negative for the dollar as it boosts supply of the currency. "The key takeaway from the Fed is that they are still worried about unemployment and Bernanke will not raise rates until 2014. So the dollar stays soft," said Geoff Kendrick, currency strategist at Nomura. 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 for the possibility of an earlier exit from its loose monetary policy. The dollar's drop saw the euro hit a three-week high of $1.32635 on trading platform EBS, breaking just above major resistance around $1.3240, which is a 50 percent retracement of its decline from late February to April 16. But it gave up those gains to last trade at $1.3215, steady on the day with investors worried about the euro zone's debt problems and a gloomy outlook for growth. BOJ EASING Nomura's Kendrick said the euro was unlikely to rise much and would not fall sharply because of the dollar's struggles. He recommended investors sell one-month euro/dollar option volatilities and go long on carry trades. In other words, the Fed's dovish bias is likely to curb large swings in euro/dollar and investors could instead fund positions in higher-yielding currencies by borrowing in dollars or yen, where rates are near zero and more stimulus is possible. The dollar also eased 0.2 percent against the yen to 81.10 yen, though it 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). Some traders say investors are already bearish on the yen as further BOJ easing has been talked about for weeks and there is room for the yen to rebound. But others say the BOJ is likely to stay under pressure to ease even after Friday's meeting. "I think there is very little scope for the BOJ to spring a surprise by announcing a much larger amount than what the market is expecting," said Steve Barrow, head of G-10 currency research at Standard Bank. "I don't expect the yen to react much if the BOJ announces what has already been pretty well telegraphed." While the Bank of Japan is easing policy to beat deflation, the Bank of Canada last week signalled it may withdraw stimulus, Minutes of the Bank of England's policy meeting also suggested another asset purchase is no longer on the horizon given "sticky" inflation. The Canadian dollar extended its rally to hit a fresh seven-month peak against the greenback, with the U.S. dollar falling as far as C$0.9806. Sterling, meanwhile, rose to a 7-1/2 month high at $1.6208. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions