Dollar at 1-mth low on Fed, yen eyes BOJ decision

By Anirban Nag

SYDNEY (BestGrowthStock) – The dollar was hovering near one-month lows against a basket of currencies on Wednesday as investors cut long positions after the U.S. Federal Reserve retained its dovish bias by pledging to keep interest rates low.

Dollar bulls were also disappointed that no one joined Kansas City Fed president, Thomas Hoenig, in dissenting the Fed’s vow to keep rates low for an “extended period,” after a batch of robust data raised hopes of a more durable recovery there.

The Fed has targeted an overnight bank-to-bank lending rate of between zero and 0.25 percent since December 2008. Interest rates near zero diminish the yield appeal of the U.S. dollar against higher-yielding currencies.

The dollar index (Read more about the global trade. ) (.DXY: ) was down near one-month lows, holding just above support around the 79.55/60 area –its trough hit in mid-February.

“The unchanged language will likely weigh on lingering expectations for rate hikes in the second-half of 2010, as most see the language as a commitment to keep the fed funds rate unchanged for roughly six months,” JP Morgan said in a note.

“As a result, it should add to downward pressure on the U.S. dollar over time.”

The dollar was also on the defensive against the yen at 90.30 yen, as the two-day Bank of Japan (BoJ) meeting ends later in the session.

Support for the dollar is seen around the 90 yen level, which is the tenkan line in an Ichimoku cloud formation.

The BOJ is expected to announce more monetary easing measures, like boosting the size or duration of special fund-pumping operations, although the board appears split.

Traders say any hesitancy to loosen policy could actually lift the yen.

The euro also held onto broad gains against the dollar at $1.3765, having jumped nearly 0.7 percent on Tuesday. It was helped by the Fed’s statement and by Standard and Poors’ removing Greece from negative ratings watch.

Traders said there is talk of large option-related sell orders ahead of $1.3800, while large stops are building above $1.3850. Still, there were chances that a short squeeze in the euro could take place if news from Greece continues to improve in the coming days, a trader at a U.S. bank said.

Meanwhile, the Australian dollar tested a two-month high of $0.9216, with stops above $0.9210 getting triggered. Near term resistance is seen at $0.9243, with the Aussie likely to be buoyed by widening interest rate differentials between U.S. and Australian government bonds.

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(Editing by Wayne Cole)

Dollar at 1-mth low on Fed, yen eyes BOJ decision