FOREX-Dollar edges down, more losses seen after Fed

* Dollar slips, more Fed QE likely to trigger selling

* Open-ended approach from Fed the key to further weakness

* Euro/dollar option expiries set to influence price action

(Adds comment, updates prices)

By Neal Armstrong

LONDON, Nov 3 (BestGrowthStock) – The dollar edged lower on
Wednesday as the Federal Reserve looked set to add more stimulus
to spur a flagging recovery, a move analysts said would weigh on
U.S. yields and ultimately put more pressure on the greenback.

Currency movements were subdued as investors were unwilling
to make new bets ahead of the U.S. central bank’s policy
decision due at around 1815 GMT, with option expiries expected
to dictate price action.

Markets were generally priced for the Fed initially to
commit to buying at least $500 billion in Treasuries over five
months in a fresh bout of quantitative easing, but traders were
eager for details of the scope and pace of bond purchases.

“There is uncertainty over the details of the Fed
announcement but ultimately QE leads to lower yields and should
mean the dollar goes down in the long term,” said Adrian
Schmidt, currency strategist at Lloyds Banking Group.

The dollar slipped as much as 0.2 percent versus a currency
basket (.DXY: ) to 76.597.

The euro (EUR=: ) inched up slightly on the day to $1.4050,
held in a $1.4000/50 range for much of the European session.
Option expiries at $1.4000 and $1.4050 later in the day were
seen influencing intraday price action.

Sterling (GBP=D4: ) hit a nine-month high of $1.6147 after
stronger-than-expected UK services sector activity data
added to the argument that the Bank of England may not implement
more QE anytime soon. [ID:nLDE6A20TQ]


Traders said liquidity had dried up since the start of the
week, with one trader in London saying his turnover in the past
two days had been the lowest in five years.

He added the market was expecting the Fed announcement to
offer more clarity on whether the dollar’s latest sell-off since
September would continue through the end of 2010.
“The market is hoping the FOMC is going to break us out one
way or the other,” the trader said, adding, “It could be this
week gives us the last thing to focus on before year-end.”

Against the yen, the dollar (JPY=: ) stood at 80.62 yen,
unchanged on the day, as a Japanese holiday led to subdued
trading, but the outlook was still skewed to the downside.

“Irrespective of recent ratcheting down of Fed QE2
expectations from $1 trillion to $500 billion, a likely
open-ended approach (of say $100 billion per month) should in
our view keep (the dollar) on a depreciation path,” said Tom
Levinson, currency strategist at ING in a note to clients.

“An absence of BOJ asset purchases of a similar scale
together with USD/JPY’s strong correlation with U.S. Treasury
yields will keep the former biased lower.”

Dollar/yen hovered close to this week’s 15-year low of
80.21, with the all-time low at 79.75 close by, as the market
stayed sensitive to potential for fresh Japanese intervention to
stem the yen’s rise.


Multimedia report on run-up to the Fed meeting:

Top News-U.S. elections:


The dollar remained weak, but showed some signs of
steadying after a fall on Tuesday.

A widely expected outcome of U.S. midterm elections, where
the Republicans took control of the House of Representatives
while the Democrats were set to hang on to the Senate, also
offered some support. [ID:nN03266983]

The Australian dollar (AUD=D4: ) was at $0.9985, retreating
from a 28-year high above parity after weak building sector data
took some of the shine off the currency, which rallied on
Tuesday when the Australian central bank raised interest rates.

(Additional reporting by Naomi Tajitsu)

FOREX-Dollar edges down, more losses seen after Fed