* 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 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.
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
"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
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
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)