FOREX-Dollar slips as China rate hike impact wanes

* Dollar takes breather after surging on China rate rise

* Euro up, Aussie rebounds 1 percent

* Sterling drops after BoE minutes

(Updates prices, adds quote, sterling reaction)

By Anirban Nag

LONDON, Oct 20 (BestGrowthStock) – The dollar fell against a basket
of currencies for the first time in four sessions on Wednesday,
as appetite for higher-yielding currencies stabilised after
being jolted by a surprise interest rate hike by China.

The dollar index (Read more about the global trade. ) eased 0.6 percent to 77.737 (.DXY: ) (=USD: )
after climbing more than 1.6 percent the previous day and well
above an 10-month low of 76.16, struck last week.

Analysts said the market’s reaction to the previous day’s
move by China was overblown, and with the Federal Reserve set to
ease monetary policy further next month any dollar rebound would
be short-lived.

“I think the move itself indicated how excessive positioning
in the market was, but any correction in the dollar will be
short and shallow,” said Derek Halpenny, European Head of Global
Currency Research at BTM-UFJ. “The main driver will be QE from
the Fed and that should weigh on the dollar.”

Investors had increased their bets against the dollar in
recent weeks and had gone long on currencies like the euro and
the Australian dollar on heightened expectations the Federal
Reserve will unveil a second round of quantitative easing.

Those stretched positions had increased chances of a
short-covering bounce in the dollar.

“The dollar’s move down through September went too far and
was overdone. This bounce we saw is part of a healthy
correction,” said Jane Foley, senior currency strategist at
Rabobank.

“The dollar’s weakening trend remains intact, as China’s
rate hike will not be slowing down its economy significantly and
this is just a temporary pause in ‘risk-on’ trades.”

The U.S. currency is often seen as a safe-haven currency and
gains when appetite for riskier assets or growth-linked
currencies suffers.

ON TRACK FOR QE

Several Federal Reserve officials indicated on Tuesday that
the central bank will soon offer further monetary stimulus, with
one saying $100 billion a month in bond buying may be
appropriate. [ID:nN19258951].

In the UK too, minutes from the Bank of England’s last
monetary policy committee meeting showed a three-way split, with
one member voting for QE. [ID:nBOE004351]

That saw sterling fall to the day’s low against the euro and
give up some of its gains against the dollar. The euro was up
0.5 percent at 87.86 pence (EURGBP=D4: ) while the pound was flat
at $1.5727, falling from around $1.5740 before the minutes were
released.

Sterling now awaits a spending cuts programme from the
coalition government which many analysts say could hurt growth
and prompt the BOE to keep monetary policy easy.

The euro was up 0.1 for the day at $1.3826 (EUR=: ), steadying
from its 1.6 percent slide the previous day. It had fallen
sharply as investors trimmed some of their risk-taking positions
after China raised interest rates by 25 basis points, its first
such action in nearly three years.

The move spurred concerns that it could mark the start of a
more aggressive phase of monetary tightening, dampening Chinese
and global growth and denting China’s voracious demand for
commodities. [ID:nSGE69I0HU].

The euro also gained against the yen (EURJPY=R: ), drawing
some support from higher Chinese shares (.SSEC: ).

But the dollar dipped 0.5 percent to 81.19 (JPY=: ), not far
from its 15-year low of 80.88 yen.

The higher-yielding Australian dollar rose 1 percent to a
session high of $0.9790 (AUD=D4: ) regaining some ground after
sliding more than 2 percent on Tuesday.
(Editing by Catherine Evans)

FOREX-Dollar slips as China rate hike impact wanes