FOREX-Dollar soft, euro firm on contrasting policy views

* Euro strong below $1.40 after Fed minutes, Weber comments

* Euro break above $1.4025-45 would open way to more gains

* Dollar up vs yen, at record low vs Swissie, index soft

(Adds quote, updates prices)

By Anirban Nag

LONDON, Oct 13 (BestGrowthStock) – The dollar came under broad
selling pressure on Wednesday, with investors pushing it towards
key lows against the euro, the Swiss franc and a basket of
currencies on more signs pointing to U.S. monetary easing.

The euro hit $1.40 in European trade and looked set to
challenge its eight-month high at $1.4030 after Federal Reserve
minutes on Tuesday reinforced expectations of more quantitative
easing. A sustained break above $1.4025-45 was seen heralding
further gains.

Dealers said hawkish comments on Tuesday from European
Central Bank Governing Council member Axel Weber, which
highlighted the difference in direction between Fed and ECB
policy, gave the euro an added lift. [ID:nN12121001]

“In the G4 space, the ECB is the only central bank that is
talking of an exit policy and that is helping the euro,” said
Ankita Dudani, G-10 currency strategist at RBS.

“But by the looks of it, the market has already priced in a
fair degree of quantitative easing by the Fed in the past few
weeks. So we expect euro/dollar to hold a range from here on.”

The euro (EUR=: ) was up 0.51 percent at $1.3994 on steady
buying by Asian central banks. Traders say a weekly close above
the $1.4030 high is seen important for the euro to push higher.

The single currency gained across the board, climbing
against the yen, sterling and the Swiss franc.

Robert Ryan, currency strategist at BNP Paribas in
Singapore, said that although the U.S. QE theme was starting to
look overpriced, there was a risk reserve diversification by
Asian central banks could support the euro.

“As long as the market continues to see the (Bank of Japan,
the Bank of England) and the Fed pumping liquidity in, it’s
going to go into emerging markets and emerging markets are going
to pump it back into the euro,” he said.

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Currency tensions map: http://r.reuters.com/jec96p

PDF report on currencies: http://r.reuters.com/gez77p

Graphic on futures positioning http://r.reuters.com/kus26k

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DOLLAR REBOUND DUE?

Minutes of the Fed’s Sept. 21 meeting showed officials
thought the struggling U.S. recovery might soon need more help
and they discussed several ways to provide it, including the
possibilities of adopting a price-level target and of buying
more longer-term U.S. government debt. [ID:nN12188145]

The market has gone very short of dollars on QE
expectations, raising the risk of a rebound as it becomes harder
to sell it down further.

Many traders say that if the Fed opts for a much smaller QE
programme than the $1 trillion in asset purchases some are
talking about, the dollar could benefit from a short squeeze.

“A large amount of QE has been priced in by the market and
we feel that any easing will be a drip feed one, with the Fed
tying further action to the data,” said Raghav Subbaro, currency
strategist at Barclays Capital. “That should leave the market
disappointed.”

But the dollar index (Read more about the global trade. ) (.DXY: ) was down 0.45 percent at 77.02,
not far from a nine-month low of 76.906 set last week. It has
shed over 4 percent since the Fed’s last meeting on Sept. 21.

The dollar also eased to a record low of 0.9546 Swiss francs
(CHF=: ) while the Australian dollar (AUD=D4: ) edged back towards
last week’s 28-year high of $0.9918.

The dollar was 0.15 percent higher against the yen at 81.90
yen (JPY=: ), supported by nervousness that Japanese authorities
could intervene the closer it gets to its record low of 79.75
yen. The dollar hit a 15-year low of 81.37 yen on Monday.

Finance Minister Yoshihiko Noda told parliament he could not
say whether or not Japan would intervene in the market.

FOREX-Dollar soft, euro firm on contrasting policy views