FOREX-Dollar steady but seen undermined by Fed QE

* Dollar steady but QE likely to lead to further selling

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

* Euro/dollar option expiries set to influence price action

* United States set for political gridlock after midterms.

(Releads, changes dateline, adds quotes, previous SYDNEY)

By Neal Armstrong

LONDON, Nov 3 (BestGrowthStock) – The dollar held steady 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.

Traders said the market was 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 are generally priced for the Fed initially to commit
to buying at least $500 billion in Treasuries over five months,
although much uncertainty surrounds 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 was flat versus a currency basket (.DXY: ) at
76.714. The euro (EUR=: ) was also steady around $1.4030, with
traders highlighting option expiries at $1.3990, $1.4000 and
$1.4050 which they said were likely to influence price action on
the day.

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 all-time lows at 79.75 also close by, as the market
stayed sensitive to potential for fresh Japanese intervention to
stem the yen’s rise.

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Multimedia report on run-up to the Fed meeting:

http://link.reuters.com/pyb23q Top News-U.S. elections:
http://link.reuters.com/fyq86p

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After a fall overnight, however, the U.S. dollar showed
signs of steadying, with traders saying the Republicans’ seizing
control of the U.S. House of Representatives in midterm
elections would provide some support. The Democrats were set to
hang on to the Senate, according to television projections.
[ID:nN01179745]

Some analysts said a split Congress may act as a curb on
government spending and lead to less government regulation.

The high-flying Australian dollar retreated after a surprise
6.6 percent drop in building approvals, a day after the Reserve
Bank lifted interest rates in a pre-emptive strike against
inflation.

The Aussie, which hit a 28-year high of $1.0025 on Tuesday,
recoiled to $0.9979 (AUD=D4: ).

Immediate support was seen at the $0.9910 area, Monday’s
high, a breach of which could see the currency back in
consolidation mode between $0.9650 and $0.9850.

(Additional reporting by Ian Chua in Sydney)

FOREX-Dollar steady but seen undermined by Fed QE