* Fed speakers temper expectations on tapering bond buying
* Dollar rises vs Japanese yen, sell orders at 98.70 yen
* Euro off four-week lows but ECB dovish bias seen checking
By Gertrude Chavez-Dreyfuss
NEW YORK, June 27 The dollar slid against the
euro on Thursday after two days of gains as Federal Reserve
officials minimized expectations the U.S. central bank would
start scaling back its stimulus program and said the Fed could
buy bonds again if the economy weakens.
U.S. economic data on Thursday was also not strong enough to
bring forward investor expectations for the timing of the
official end to this round of the Fed's 'quantitative easing'.
While U.S. consumer spending rebounded in May and new
applications for unemployment benefits fell last week, they were
not blockbuster numbers, which suggested that the U.S. economy
remains on a moderate growth path.
Meanwhile, the Japanese yen fell, partly pressured by the
Fed officials' comments. When talk about the Fed tapering its
bond-buying program started weeks ago, the yen had benefited
along with the dollar as investors started moving away from
riskier currencies and toward safe havens.
Greg Moore, a currency strategist at TD Securities in
Toronto, said the overall message of the latest Fed comments
seemed to be that the market had been a little aggressive in
pricing in an early reduction of the U.S. central bank's asset
"Basically, the Fed speakers were saying that nothing has
changed and the exit from quantitative easing remains
data-dependent. And that may have taken the steam out of the
dollar a little bit," he said.
William Dudley, the influential head of the New York Fed,
said on Thursday the Fed's asset purchases could even be more
aggressive than Bernanke outlined last week if economic growth
and the labor market turn out weaker than expected.
Also on Thursday, Fed Board Governor Jerome Powell said
financial markets have over-reacted to the U.S. central bank's
statements and have brought expectations of the first Fed
interest rate hike too far forward.
That said, analysts said the dollar's uptrend remained
intact. Even if the Fed does not start reducing stimulus
measures later this year, as indicated by Fed Chairman Ben
Bernanke last week, the U.S. economic recovery still leads that
of other major economies such as the euro zone, Japan and China.
Overall, the U.S. dollar still remains the strongest net
bought currency across the board, according to data from BNY
In late afternoon trading, the euro was up 0.2 percent
against the dollar at $1.3041, with the session low at
BNP Paribas said it has initiated a short euro/dollar trade
at $1.3035, targeting a move to $1.2640, with stops at $1.3250.
"The changing paradigm for the Fed boosts yield support for
the dollar, while the European Central Bank remains relatively
dovish. Accordingly, the prospects for euro/dollar downside are
rising," said BNP Paribas in a research note.
The dollar index, which measures the U.S. currency against a
basket of currencies, was down 0.1 percent at 82.916,
after touching a three-week high of 83.171.
The greenback overall has benefited from a rise in U.S.
yields as more investors factored in the probability the Fed
will start to wind down its $85 billion monthly asset purchase
program later this year.
The dollar gained against the yen as U.S. Treasury yields
rose after data showed pending home sales for May rose 6.7
percent, far above economists' estimates of a 1 percent gain but
not enough to alter the overall theme for currency trading.
The dollar last traded up 0.6 percent at 98.30 yen,
edging toward Monday's peak of 98.70 yen. But traders said its
rise could be capped on large sell orders above 98.70 yen.
The broad trend for dollar strength in the coming months
will hinge upon expectations of reduced Fed stimulus, said
Asmara Jamaleh, an economist at Intesa Sanpaolo in Milan. U.S.
data this week and next week could see the dollar drop if it
lags forecasts, but any falls would provide a buying
opportunity, she said.
Sterling fell to a trough of $1.5200 on Thursday, its
lowest in more than three weeks, after an unexpected downward
revision to UK year-on-year first-quarter growth.
The pound was last down 0.3 percent at $1.5262.
Analysts were also a bit more bleak on the euro's outlook
after it closed below its 200-day moving average at $1.3073 and
European Central Bank officials said the ECB was not ready to
wind down stimulus.
The euro/dollar formed a 'death cross' with the 100-day
simple moving average at $1.3071, now below the 200-day SMA at
$1.3072. A death cross occurs when the shorter-term moving
average drops below a longer-term moving average.
With the 50-day SMA at $1.3077, it is probable that there
will be both a second and third occurrence of a death cross in
coming days when that SMA moves below both the 100- and 200-day
simple moving averages.