FOREX-U.S. dollar sharply lower on Fed easing report

* Dollar falls sharply as market focuses on Fed easing

* Aussie rebounds smartly, dollar at 15-year low vs yen

* Uncertainty about Fed policy, global currency talks looms

(Recasts, updates prices, adds comment)

By Steven C. Johnson

NEW YORK, Oct 20 (BestGrowthStock) – Investors unloaded the dollar
on Wednesday as a report from an influential consultancy said
the Federal Reserve planned to buy $500 billion of Treasury
debt over six months to invigorate a faltering U.S. economy.

The report accelerated a dollar sell-off that began
overnight. The dollar hit a 15-year low beneath 81 yen and the
euro rose above $1.39, up more than 1 percent, while the
commodity-linked Australian dollar rose nearly 2 percent.

Markets expect the Fed to start pumping money into the U.S.
economy as soon as November, a policy known as “quantitative
easing,” and that has driven the dollar down since September.

The Medley report confirmed comments made on Tuesday by a
Fed official that $100 billion a month in bond purchases may be
appropriate, providing traders an incentive to push the dollar
lower.[ID:nN19258951]

“Quantitative easing still hangs over the market, and
that’s dollar negative, but there is still uncertainty about
what it will look like,” said Marc Chandler, global head of
currency strategy at Brown Brothers Harriman.

The euro rose 1.1 percent to $1.3960 (EUR=: ), off a $1.3699
session low. It hit an 8-1/2-month high above $1.41 last week.
Traders said selling interest was clustered around $1.4010-20.

Chandler said a rise in German bond yields in anticipation
of tighter euro zone policy was also helping the euro,
particularly with investors focused on easier U.S. policy.

CitiFX strategists recommended going long the euro at
$1.3845 with a $1.5145 target, a level last approached in
November 2009.

Sterling rose 0.9 percent to $1.5848 (GBP=D4: ), shaking off
losses after Bank of England minutes showed a three-way split
among policymakers, with one voting for more monetary easing.

The dollar hit a 15-year low beneath 81 yen and was last
down 0.6 percent at 81.08 yen (JPY=: ). Japan spent a bit more
than $20 billion last month to weaken the yen, but that failed
to keep the dollar from nearing its record low beneath 80 yen.

DOLLAR LOSSES MAY BE LIMITED

Analysts warned, however, that already large speculative
bets against the dollar and lingering uncertainty about global
currency tensions could limit dollar losses in the short run.

Tuesday’s surprise interest rate hike from China, which
sparked fear of slower Chinese and global growth, increased
risk aversion and briefly pushed the safe-haven dollar higher

Some said China’s move and recent assurances from Treasury
Secretary Timothy Geithner the United States was not devaluing
the dollar for export advantage suggest G20 finance officials
may be trying to iron out differences over exchange rate policy
ahead of their weekend meeting in South Korea.

Washington wants China to allow more rapid appreciation of
the yuan, while Beijing and others complain that dollar
weakness is stoking inflation by pushing money into their
faster-growing economies.

Scotia Capital strategist Camilla Sutton said the market is
“in a bit of a gray area,” adding “we think the dollar will end
the year weaker, but for now, we’re probably going to be in a
period of more subdued trading until we get a firmer idea of
where policymakers are headed.”

German Chancellor Angela Merkel said Wednesday she backed a
French proposal to put currency issues on the agenda of a
November meeting of G20 heads of state. [ID:nLDE69J1W6]

“People are buying what floats, and what floats right now
is the euro, the Australian dollar,” said BNP Paribas
strategist Sebastien Galy. “But if the G20 strikes some type of
deal on currencies, that could reduce the size of quantitative
easing, and less dollar creation will be positive for the
dollar.”

(Editing by Andrew Hay)

FOREX-U.S. dollar sharply lower on Fed easing report