FOREX-Dollar woes return after G20; yen at 15-year peak
* G20 vows to refrain from competitive devaluations
* Market awaits further clues on possible Fed easing
* Yen at 15-yr high; euro gains seen capped by options
(Updates prices, adds detail, comment)
NEW YORK, Oct 25 (Reuters) - The dollar fell broadly to a fresh 15-year low against the yen on Monday after a Group of 20 agreement failed to give investors any reason to stop selling the U.S. currency.
At the meeting in South Korea, G20 finance chiefs on Saturday agreed to shun competitive currency devaluations but stopped short of setting targets to reduce trade imbalances clouding global growth prospects. [ID:nTOE69M004]
Analysts said the outcome pointed to a status quo in currency markets, with the dollar staying under pressure due to expectations the Federal Reserve will unveil a second round of quantitative easing as early as its Nov. 2-3 meeting.
The G20 statement "didn't go far enough as saying countries won't devalue their currencies so we saw the yen go to a fresh 15-year high," said John Doyle, strategist at Tempus Consulting in Washington. "The focus now is on the Fed's November 3 meeting and expectations of further quantitative easing." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ G20 PDF file at r.reuters.com/nan99p For an FX column on the Fed, click on [ID:nLDE69L1EY] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The dollar index, which measures its value against a basket of currencies, dropped 0.5 percent to 77.126 .DXY, but support was seen around its 10-month low at 76.144 touched mid October.
The dollar fell 80.41 yen on electronic trading platform EBS JPY=EBS, its lowest in 15 years. Market players said chances of Japanese yen-selling intervention would increase if the dollar fell below 80.00 yen and tests its record low of 79.75 yen.
In early New York trade the dollar was last at 80.62 yen <JPY= down 0.9 percent.
The euro rose 0.2 percent to $1.3975 EUR=, having earlier risen as high as $1.4080 and breaking through resistance at $1.4051.
But the euro pared gains after a report showed sales of previously owned U.S. homes rose a more than expected 10 percent in September indicating the housing market was stabilizing at weaker levels. [ID:nN25264142]
"The data's much better than we had expected but it will have zero impact on the course of U.S. monetary policy, which is on railroad tracks right now and heading in one direction, with nothing that could possibly derail it," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "Bernanke's mind is fixed on quantitative easing and that's what we'll get next week."
The move back below $1.4000 was viewed as significant given the euro had failed several times in recent days to break through and hold that level.
The euro rally on Monday marked the 76.4 percent retracement of the euro's drop to $1.3697 last week from an 8-1/2 month high of $1.4161 hit earlier this month.
Some traders expect $1.4161 to be reached soon. But gains above there were likely to be checked due to the presence of some large option barriers, including a one-touch option barrier at $1.4215 that is set to expire on Wednesday.
That could lead to a stronger-than-usual defence of that level with the barrier payout said to be a 30 million euros. More typical option payouts are in the 3-5 million euro range.
One trader said real money accounts and trend-following commodity trading advisers were seen buying the euro and the Australian dollar, while another cited buying of the euro and the Australian dollar by Asian accounts.
The Australian dollar surged roughly 1.2 percent to $0.9940 AUD=D4, boosted by news that Singapore Exchange (SGXL.SI) will buy Australian bourse operator ASX (ASX.AX), and expectations of a rate hike early next month. [ID:nSGE69N02J].
FOCUS ON FED
That was in sharp contrast to the United States where the Federal Reserve looks all set to ease monetary policy further.
While U.S. Treasury Secretary Timothy Geithner reiterated that the United States supports a strong dollar at the G20 meeting, there were few takers for that.
"It is one thing for the Treasury to say that, but then the Fed holds all the ammunition and when it is set to print more money, the dollar will remain a weakened currency," said Jane Foley, senior currency strategist at Rabobank.
Analysts at Goldman Sachs said the Fed is almost certain to announce renewed monetary easing at next week's policy meeting. They said it may announce $500 billion in asset purchases or a bit more over a period of about six months, and the size could eventually reach $2 trillion.
In a Reuters poll earlier this month, U.S. primary dealers projected the size of quantitative easing in a range of $500 billion to $1.5 trillion [FED/R]. (Additional reporting by Anirban Nag in London) (Reporting by Nick Olivari; Editing by Andrew Hay)
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