Reuters: US Dollar Report: FOREX-Dollar drops broadly as Fed leaves stimulus program intact

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FOREX-Dollar drops broadly as Fed leaves stimulus program intact Jul 31st 2013, 19:45 Wed Jul 31, 2013 3:45pm EDT * Dollar drops as Fed leaves bond buying program in place * U.S. GDP grows 1.7 percent in 2nd quarter * U.S. private sector adds 200,000 jobs in July * Focus shifts to ECB, BoE and U.S. payrolls data By Julie Haviv NEW YORK, July 31 (Reuters) - The dollar fell broadly on Wednesday after the Federal Reserve refrained from offering any indication that a reduction in the pace of its stimulus program was imminent despite upbeat U.S. economic growth and private-sector jobs data. After a two-day meeting, the Fed said the economy continues to recover but is still in need of support. For now, the Fed will keep buying $85 billion in mortgage and Treasury securities per month in its ongoing effort to bolster an economy still challenged by federal budget-tightening and weak growth overseas. The Fed's bond buying program is negative for the dollar as it is tantamount to printing money and dilutes its value. Those bullish on the dollar are eager for less stimulus as that could prod U.S. interest rates higher and make the greenback more attractive to investors. There were "some subtle changes in the format of the ensuing policy statement and on balance it appears that the central bank has edged ever so slightly away from reducing bond purchases," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York. "Today ... the sense that easy money is here to stay will likely permeate investor sentiment," he said. Buoyed by a status quo Fed, the euro reached $1.3344, its highest since June 19. In late afternoon trade, the euro was at $1.3328, up 0.5 percent on the day. The dollar index, which tracks the greenback against a basket of six currencies, was down 0.24 percent at 81.631 . The index was on track for a second consecutive monthly decline, with the euro gaining for a second straight month. The Fed's failure to signal clearly the chance of a stimulus taper in September caused the dollar to lose ground, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington D.C. "On the brighter side, the Fed acknowledged modest growth during the first half of the year and more improvement in the job market," he said. "On the other hand, Fed officials also acknowledged concerns about low inflation and high unemployment which could pose potential impediments to a near-term taper." The dollar earlier found support from upbeat economic data showing the U.S. economy grew at an annualized clip of 1.7 percent in the second quarter. Also, the U.S. private sector added 200,000 jobs this month, above forecasts of 180,000. Against the yen, the dollar fell 0.3 percent to 97.74 yen after earlier dropping to 97.56, its lowest in a month. The U.S. currency rallied in May and June after Fed Chairman Ben Bernanke said on May 22 that the Fed could cut back on its bond purchases by September. Bernanke subsequently backtracked, however, saying the Fed would keep its stimulus program in place if U.S. growth stayed sluggish. With the Fed meeting is out of the way, foreign exchange market participants will focus on Thursday's European Central Bank and Bank of England policy meetings. On Friday, the U.S. Labor Department will release its July nonfarm payrolls report. An upbeat jobs report should buoy the dollar, as it will heighten expectations the Fed will lower the amount of its monthly bond purchases this year. The dollar should drop if the opposite holds true. Link this Share this Digg this Email Reprints

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