Reuters: US Dollar Report: FOREX-Dollar under pressure after Fed sparks easing hopes

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FOREX-Dollar under pressure after Fed sparks easing hopes Aug 23rd 2012, 01:04 Wed Aug 22, 2012 9:04pm EDT * Fed minutes prompts expectation of easing next month * Dollar index falls below Ichimoku cloud * Fed may just extend its promise to keep rates low -analyst By Hideyuki Sano TOKYO, Aug 23 (Reuters) - The dollar was on the defensive on Thursday after minutes of the U.S. Federal Reserve suggested it is willing to deliver more monetary stimulus "fairly soon" unless the economy improves considerably. The dollar's index against a basket of currencies dropped to its lowest level in almost two months to 81.434. In a bearish technical sign, the index has fallen below the bottom of the cloud on the daily Ichimoku chart. "The minutes were quite dovish, leading you to think that there will be some form of easing next month unless upcoming payroll data is surprisingly strong," said Ayako Sera, senior economist at Sumitomo Mitsui Trust Bank, referring to the U.S. employment report due on Sept. 7. As the dollar wilted, the euro rose to seven-week high of $1.2544 and is likely to test the top of its cloud, which was at $1.2585 on Thursday. If it rises above the cloud -- whose top will gradually descend to around $1.24 within two weeks -- this will signal more bullishness for the euro. Against the yen, the dollar fell to 78.273 yen late on Wednesday, its weakest in over a week, and last traded at 78.60 yen, down more than a full yen from a five-week peak hit on Monday. Still, the dollar is likely to have a support around 77.50-78.00 yen for now, analysts say, because of wariness about intervention by Japanese authorities. Talk of the Fed easing could prompt the Japanese central bank to consider easing as well, they said. "When the Fed eases its policy, the dollar could fall below 78 yen. But I don't expect the dollar to fall substantially below 78 yen before any actual easing by the Fed," said Sumitomo Mitsui Trust's Sera. While many market players expect the Fed's likely easing to come in the form of a third round of bond buying, otherwise known as quantitative easing, some analysts cautioned that the Federal Reserve may take a more softer approach, such as extending the period it plans to keep exceptionally low rates in place instead. The Fed has pledged to keep low rates at least through late 2014. "Given mixed economic indicators of late, I doubt the Fed will embark on QE3 in September. If the Fed just extends the period of low rates, the impact on the currencies will be limited," said Makoto Noji, senior analyst at SMBC Nikko Securities. With the Fed policy in fresh focus, the market is waiting for Fed Chairman Ben Bernanke's speech at the annual informal conference of central bankers and economists in Jackson Hole, Wyoming, at the end of this month. Before that meeting, traders are also keen to see if European policy makers can take bold steps to stem the region's debt crisis. Expectations have grown in recent weeks that the European Central Bank will announce plans at its next policy meeting on Sept. 6 to help lower Spanish and Italian bond yields, which some analysts believe will enable the euro to gain further. Link this Share this Digg this Email Reprints

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