FOREX-Dollar seeking direction, eyes turn to ECB

Wed May 1, 2013 7:26pm EDT

Related Topics

* Dollar index nurses losses, but off lows

* Fed recommits to aggressive stimulus programme

* ECB next in focus, then U.S. jobs on Friday

By Ian Chua

SYDNEY, May 2 (Reuters) - The dollar remained on the defensive in early Asian trade on Thursday but was off its lows after the Federal Reserve recommitted to its aggressive stimulus programme and kept its options open to what it would do next.

The dollar was last down 0.1 percent against a currency basket, having earlier plumbed a fresh two-month low. The dollar index eased 0.1 percent to 81.630 after sliding as far as 81.331.

The greenback had been under pressure in the lead up to the Fed meeting after tame inflation data and disappointing employment growth added pressure on the Fed to expand its debt purchasing programme.

The Fed said: "The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labour market or inflation changes."

That disappointed some in the market looking for a clear indication of bigger debt purchases, driving U.S. Treasury yields up from four-month lows and helping the dollar trim broad losses.

Yet with U.S. data turning soft, analysts said the Fed is more likely to respond by increasing its debt purchases rather than taper off.

Indeed, analysts at Barclays Capital said the addition of the statement, especially the dependence on inflation outlook given recent trends, is "incrementally dovish" and suggested that real yields have room to fall.

The market's focus will now turn to the closely watched non-farm payrolls report due on Friday. Foreshadowing a soft reading, private sector hiring slowed again in April while employment in the manufacturing sector fell.

Against the yen, the dollar was little changed at 97.31 , staying not far from a four-year high near 100 set in April.

Later Thursday the Bank of Japan will publish minutes of its April 4 meeting, when new Governor Haruhiko Kuroda stunned markets by promising to inject about $1.4 trillion into the economy to hit the 2 percent inflation target in roughly two years.

The euro retreated to $1.3177, from a two-month high of $1.3243 as the greenback pared losses.

The euro's immediate fortunes depend on the European Central Bank (ECB), which is widely expected to deliver a token 25 basis point rate cut to its 0.75 percent benchmark refinancing rate.

Anything less than a rate cut could see the euro stage a rebound, traders said.

After a muted reaction on Wednesday to data showing China's manufacturing activity cooled further in April, commodity currencies like the Australian dollar came under heavy pressure in New York. China is Australia's single biggest export market.

The Aussie dollar, which fell more than 0.8 percent on Wednesday, last stood at $1.0271, pulling well away from this week's peak of $1.0386.

HSBC will release its final survey of China's factory activity for April at 0145 GMT. Earlier reports have raised fresh doubts about the strength of the world's second biggest economy after a disappointing first quarter.

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