FOREX-Dollar rallies as investors reduce short bets

* Dollar index higher year to date with Wednesday’s gain

* Dollar rises to 2-week high vs yen, 1-wk high vs euro

* Fed eyes gradual bond buys-WSJ

(Updates prices, adds details, adds quotes)

NEW YORK, Oct 27 (BestGrowthStock) – The dollar rose against the
euro and yen on Wednesday, pushing the dollar index (Read more about the global trade. ) higher year
to date, as investors eased short bets against the currency
ahead of a Federal Reserve meeting.

While Fed meetings are always of paramount interest, the
coming statement is more anticipated than usual given the
central bank has telegraphed several times it will add to the
liquidity in the system to stoke economic growth through
additional quantitative easing.

The question now is by how much and whether the new
measures will be phased in over time?

Some investors are more willing to take bets on the dollar
on expectations the U.S. economy will gain traction from QE,
particularly compared with other regions such as the euro zone.
For an analysis, click [ID:nN27213289].

The Wall Street Journal reported the Fed would make bond
purchases worth a few hundred billion dollars over several
months, which compared with investors’ base-case scenario for
an initial commitment to buy at least $500 billion.

In a Reuters survey earlier this month, U.S. primary
dealers’ projections for the size of the Fed’s expected
quantitative easing at its Nov. 2-3 policy meeting ranged from
$500 billion to $1.5 trillion. [FED/R]

The dollar hit a two-week high against the yen and a
one-week peak versus the euro, which was also knocked by euro
zone banks taking up more cheap funding than expected at a
three-month ECB tender [ID:nLDE69Q0XN].

The greenback jumped against the Australian dollar and hit
a one-month high against the Swiss franc (CHF=: ).

“Whether they (the Fed) actually give a size for the amount
of stimulus is questionable,” said Anthony King, managing
director of investment grade fixed income at PineBridge
Investments in London. PineBridge Investments manage more than
US $78 billion in assets. “That’s why the dollar has
strengthened somewhat this week because market commentators had
been leaning too far in the other direction.”

If the Fed announcement is largely as expected, the dollar
is likely to weaken in coming days.

“Having that news (of easing) confirmed would likely weaken
the dollar a little further,” King said. “It’s possible we
could see $1.45 versus the euro. But I wouldn’t expect us to
overshoot much more than that.”

The $1.4500 target is for a month after Wednesday’s


Midway through the New York session, the euro was down 0.5
percent at $1.3784 (EUR=: ). It fell as low as $1.3758 on
electronic trading platform EBS (EUR=EBS: ) after triggering stop
loss orders at $1.3770. The break of an option barrier at
$1.3800 accelerated selling earlier in the global day.

The dollar trimmed gains versus the euro after data showing
U.S. durable goods orders rose more than expected in September
though it then extended gains after a separate report showed
U.S. new home sales rose more than expected the same month. For
details see [ID:nN27154819] and [ID:nN27228064].

Traders reported bids were expected around $1.3750/60. A
break of $1.3750 could prompt a test of last week’s low around

Many analysts believe the gap between euro zone and U.S.
short-term rates, reflecting QE expectations from the Fed while
the ECB gradually withdraws liquidity, will mean the euro is
unlikely to fall below $1.35 in the next month or two
particularly while investors wait to see the impact of the Fed
PDF on G20’s uneasy truce:
FX column on the Fed: [ID:nLDE69L1EY]


The dollar index (Read more about the global trade. ), which tracks the performance of the
greenback versus a basket of six other major currencies, was up
0.4 percent at 77.984 (.DXY: ) and is up 0.2 percent year to date
at current prices.

Against the yen, the dollar rose as high as 81.99 yen on
electronic trading platform EBS (JPY=EBS: ), pulling further away
from a 15-year low of 80.41 yen struck earlier this week. It
last traded at 81.53 yen.

The Aussie dollar was down 1.5 percent at $0.9702 (AUD=D4: ),
dented by a smaller-than-expected rise in Australian consumer
prices last quarter which was seen reducing chances of future
interest rate hikes.

Spot yuan (CNY=CFXS: ) closed down against the dollar on
Wednesday after the People’s Bank of China set another weaker
mid-point in a move seen aimed at curbing mounting speculation
of further yuan appreciation. [ID:nTOE69Q08R].
(Additional reporting by Wanfeng Zhou in New York)
(Reporting by Nick Olivari; Editing by Andrew Hay)

FOREX-Dollar rallies as investors reduce short bets