FOREX-Dollar rallies vs yen after Fed; euro rebounds

Wed Mar 20, 2013 3:31pm EDT

Related Topics

* Dollar jumps to session peak vs yen after Fed
    * Euro rises from four-month low against dollar
    * Cyprus seeking financial deal with Russia

    By Wanfeng Zhou
    NEW YORK, March 20 (Reuters) - The U.S. dollar rallied
against the yen on Wednesday after a decision by the Federal
Reserve to continue its aggressive monetary easing fueled
optimism about the U.S. economic recovery.
    The euro rebounded from a four-month low against the dollar
as immediate fears about a financial meltdown in Cyprus eased,
with the small island country pleading for a new loan from
Russia.
    The Fed said it will continue to buy $85 billion in mortgage
and Treasury bonds per month despite growing concerns about the
risks the purchases could pose. It said unemployment remains too
high and fiscal policy has become somewhat "more restrictive,"
likely referring to the government's hefty spending cuts.
 
    The dollar initially trimmed gains versus the yen and fell
further versus the euro after the Fed statement. But it quickly
reversed those moves and rallied to a session high versus the
yen as U.S. stocks climbed.
    "It's positive for risk appetite. The stock market will
benefit from continued ultra-accommodative monetary policy,"
said Michael Woolfolk, senior currency strategist at BNY Mellon
in New York. "There's been nothing in the policy statement to
suggest any type of change in the Fed's stance."
    Gains in stocks tend to weaken the yen as investors borrow
in the low-yielding Japanese unit and use the proceeds to invest
in assets with greater returns. The prospect of further monetary
easing in Japan added to the allure of the yen as a funding
currency.
    The dollar rose to a high of 96.03 yen according to
Reuters data, and last traded at 95.91 yen, up 0.8 percent on
the day. 
    The euro rallied 1.3 percent to 124.18 yen. The
Australian dollar and sterling both gained 0.9 percent versus
the yen.
    The U.S. central bank's meeting came as turmoil in Europe
took another turn for the worse. Cyprus ordered banks to stay
shut until next week as the government scrambled to come up with
another plan after rejecting the terms of a bailout from the
European Union. 
    Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington, said the Fed's pledge to keep its foot
on the gas pedal of monetary easing, while inherently negative
for the dollar, should help the U.S. economic recovery.
    "The resulting upside for U.S. assets should continue to
spur demand for the greenback," he said. "Moreover, the mounting
uncertainty in the euro zone continues to contrast the improving
backdrop in the U.S. and should add to the dollar's appeal as a
safe harbor from political and economic volatility abroad."
    Against the dollar, the euro rose 0.5 percent to
$1.2947, rebounding from $1.2843 set on Tuesday, it's lowest
since late November.
    Analysts said the euro benefited from expectations European
leaders will eventually find a solution to the Cyprus crisis,
and noted there were few signs of instability in the bond
markets of Spain and Italy.
    Some strategists said the European Central Bank's assurance
on Tuesday that it was committed to providing liquidity to
Cypriot banks within certain limits also helped the euro.
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