Dollar down ahead of Fed, yen soars to 15-year high

By Gertrude Chavez-Dreyfuss

NEW YORK (BestGrowthStock) – The dollar slipped against a major currency basket on Monday as markets braced for expected Federal Reserve easing this week that could push Treasury yields lower and diminish the allure of U.S. assets.

Japanese intervention fears came to the fore once again after what seemed like an erroneous spike in the dollar versus the yen following the pair’s fall to a fresh 15-year low. That further added uncertainty to a market already jittery about Wednesday’s Fed decision although price action remained confined to narrow trading ranges.

“The market is probably still expecting that quantitative easing will be bigger than what has already been priced into the market and that is dollar-negative,” said Boris Schlossberg, director of FX research at GFT in New York.

“You’re just seeing these rangebound movements between $1.39 and $1.40 in the euro because I don’t think there is any consensus yet on how the Fed is going to react on Wednesday.”

A recent Reuters poll found that most economists expect the Fed to buy $80 to $100 billion in assets per month, with totals ranging widely from $250 billion to $2 trillion.

“The fact that the Fed will use further QE is a burden for the dollar, whatever the volume they announce,” said Ulrich Leuchtmann, head of FX research at Commerzbank.

More dollar-selling is unlikely before the announcement, however, and the recent $1.37-1.41 euro/dollar range should hold for now, he added.

Analysts said the market remained fairly short dollars heading into the Fed meeting but short-term players have lightened some positions, latest CFTC data showed. (IMM/FX: )

Some analysts believe dollar short positions have become overstretched as investors priced in aggressive Fed QE, leaving scope for a pullback in the dollar if the Fed announces QE at the lower end of expectations. Others, however, believe any QE will be negative for the dollar.

CENTRAL BANK MEETINGS, U.S. JOBS DATA

There are also significant event risks this week, leaving most investors sidelined, traders said. As well as the Fed, there are four other major policy decisions this week — in Australia, the euro zone, UK and Japan — with key U.S. jobs data due Friday.

In early morning trading, the greenback was down 0.3 percent against a basket of six currencies at 77.059 (.DXY: ).

Weaker-than-expected U.S. consumer spending and personal income data had little impact on the currency market, but a manufacturing survey from the Institute for Supply Management at 10 a.m. (1400 GMT) should provide clues on how the U.S. economy is faring ahead of the Fed meeting.

The euro was down slightly at $1.3933 after climbing to $1.4012 overnight.

The euro was weighed down by gains in the pound, traders said, after UK data showing an above consensus PMI manufacturing print. The recent strength in UK data, which included a stronger-than-expected gross domestic product data for the third quarter, has pushed out expectations the Bank of England will engage in quantitative easing.

The euro was down 0.3 percent at 0.8667.

The dollar gave up its gains against the yen and slid back within sight of its 1995 record low of 79.75 yen, after spiking more than one yen to 81.60 yen in early Asian trade. Talk of dollar sales related to redemptions of U.S. Treasuries weighed on the currency pair.

The dollar was flat at 80.36 yen after leaping from 80.35 yen to 81.60 yen very rapidly at about 0000 GMT. Before this, it had slipped to a 15-year low of 80.21.

Dealers said the spike made many suspect possible Japanese intervention, but it quickly gave up gains as talk circulated the spike was caused by a miss-hit or technical glitch.

With the dollar close to the 80.00 yen level some see as a possible threshold for intervention, the sudden rise prompted others to jump on the move, sending the dollar even higher.

(Additional reporting by Neal Armstrong in London; Editing by Chizu Nomiyama)

Dollar down ahead of Fed, yen soars to 15-year high