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FOREX-Dlr aided by talk of BOJ easing, Fed to try QE-light
September 28, 2010 / 12:59 AM / in 7 years

FOREX-Dlr aided by talk of BOJ easing, Fed to try QE-light

* Yen capped by speculation BoJ could ease next week

* Dollar aided by talk Fed easing could be in small steps

* Euro dragged by Moody’s downgrade of Anglo Irish Bank

SYDNEY, Sept 28 (Reuters) - The struggling dollar got a reprieve on Tuesday as talk the Bank of Japan may further loosen policy supported it against the yen, while soft U.S. stocks encouraged profit-taking in riskier currencies.

Traders said the dollar also found some support from a WSJ report that any further quantitative easing by the Federal Reserve would be in small steps rather than an outright pledge of massive bond purchases. [ID:nTOE68R008]

The Nikkei business daily reported the Bank of Japan (BoJ) may further ease policy at its Oct 4-5 meeting if it judged growth to be under threat.

That weighed on the yen as it revived talk the BoJ could undertake more quantitative easing next week by injecting longer-term funds into the money market, or opt for the more controversial move of buying more Japanese government bonds. [ID:nSGE68Q0KS]

In the background was continued investor anxiety that Tokyo may intervene if the yen gets up toward 82 per dollar.

In early Asian trade, the dollar was little changed from its New York's close at 84.28 JPY= with support at 84.05, the 61.8 percent Fibonacci retracement of its rise in the hours before and after Tokyo's intervention earlier this month.

Still all the talk of quantitative easing (QE), even if in modest form, was having an effect.

“The tendency towards more QE will reinforce the rising trend in non-QE currencies,” said Greg Gibbs, an analyst at RBS in Sydney.

“It will reinforce the rising trends in commodities, especially gold and food staples, and commodity, Scandinavian and Asian currencies, and any currency that has less need of quantitative easing, such as the Swiss franc.”

Indeed, the dollar index .DXY hit a seven-month trough of 79.19 on Monday. It managed to crawl up to 79.51 in early Asian trade after a modest fall in U.S. stocks led investors to take profits in riskier currencies.

The Swiss franc CHF=, on the other hand, flew at 0.9857 per dollar, in sight of a 30-month peak of 0.9776 hit last week.

The Australian dollar AUD=, another clear winner, was strong at $0.9601. Many believed it could retest its record peak of $0.9851 in coming weeks before charging to parity.

The euro, whilst not beset by QE fears, was no less vulnerable to fiscal debt woes.

It was a shade softer at $1.3437 EUR=, away from Monday's five-month peak of $1.3507, after Moody's downgrade of the lower-grade debt at Anglo Irish Bank led investors to sell into the common currency's recent gains.

The euro’s retreat meant it had failed the first test of resistance at $1.3511, a 50 percent Fibonacci retracement of its fall from $1.5145 last November to its June low around $1.1876.

The common currency also ceded ground on the yen to dip to 113.26 EURJPY=R, from 113.48 seen in New York. (Additional reporting by John Noonan in IFR) (Reporting by Koh Gui Qing)

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