FOREX-US Fed sticks with loose monetary policy, dollar weaker

Wed May 1, 2013 3:30pm EDT

Related Topics

* U.S. Fed maintains stimulative monetary policy
    * ECB seen cutting interest rates on Thursday, economy weak
    * U.S. private-sector job growth weaker than expected
    * Australian dollar slides on disappointing Chinese data


    By Daniel Bases
    NEW YORK, May 1 (Reuters) - The U.S. dollar weakened in
choppy trading after the Federal Reserve cited risks to U.S.
growth from austerity in Washington and maintained its plan to
buy bonds in order to keep borrowing costs low to prop up the
economy.
    After the euro pushed to a two-month high against the
greenback following disappointing economic data earlier on
Wednesday, the Fed's statement weakened the euro zone currency,
albeit briefly.
    But the dollar spiked higher against the yen, climbing from
an early two-week low, before slipping back.
    In its statement following a two-day meeting, the Fed 
reiterated it will continue to buy $85 billion worth of bonds
each month to support a moderately expanding economy that still
has too high an unemployment rate.
    Only a month or so ago, investors expected the Fed to start
scaling back asset purchases. 
    "The talk of tapering (bond purchases) has not only been
pushed to the back burner but pushed off the stove altogether.
It's not something we're likely to see until 2014,"  said
Michael Woolfolk, senior currency strategist at BNY Mellon in
New York.
    In mid-afternoon New York trade, the euro maintained a 0.35
percent advantage on the greenback, trading at $1.3212.
The May Day holiday kept most of Europe's markets closed. 
    The European Central Bank is expected to cut the main euro
zone interest rate at its monthly meeting on Thursday as the
bloc's economy has weakened further. 
    "Going into the ECB meeting, it might cut its policy rate
and it might give some forward guidance, which is the most you
could expect to get. Those looking for quantitative easing from
the ECB will be disappointed," said John Canally, investment
strategist and economist at LPL Financial, in Boston.
    The U.S. dollar slipped 0.06 percent to trade at 97.35 yen
. Immediately following the Fed's statement the dollar had
surged to a New York-session high of 97.54 yen before the gains
eroded.
    Over the last three trading days, the yen has found support
around 97.18, the 38.2 percent Fibonacci Retracement level from
the April 4 low to the April 11 high, according to Reuters data.
    The dollar index, which measures the U.S. currency's
value against a basket of currencies, dropped as low as 81.331,
its weakest since Feb. 25. It was last at 81.503, down 0.3
percent.
    Data released on Wednesday showed U.S. companies hired the
smallest number of employees in seven months in April while
manufacturing growth slowed. Another report showed U.S.
construction spending dropped to a seven-month low in March.
 
    Investors will get further clues about the health of the
economy when the government releases its nonfarm payrolls report
for April on Friday. Economists are looking for job growth of
145,000 last month, up from 88,000 for March.
    The pound spiked to a session high of $1.5604 after
the Fed's decision, its best showing since mid-February. Earlier
strength for sterling was underpinned by a better-than-expected
UK manufacturing survey. 
    The Australian dollar fell 0.8 percent to $1.0282 
after data showed growth in China's manufacturing sector
unexpectedly slowed.
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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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