FOREX-Dollar falls vs key currencies before Fed announcement
* Market awaits signals on Fed's next policy move * Fed expected to keep options open on pace of bond buying * Dollar hits lowest since February against major currencies NEW YORK, June 19 (Reuters) - The dollar fell to a four-month low against major currencies on Wednesday, ahead of the Federal Reserve's announcement and news conference that could shed light on the direction of U.S. monetary policy in the near term. Speculation that the Fed might begin slowing its pace of asset purchases had triggered a recent selloff in global stocks and sent the safe-haven Japanese yen up more than 5 percent against the dollar so far this month. Analysts said the Fed will likely announce that it will continue to buy bonds at a monthly pace of $85 billion, while keeping options open to scale back the program later this year if the U.S. labor market improves. Any indication that the Fed is unlikely to withdraw stimulus anytime soon could hurt the dollar, though the currency could gain against the yen as a rally in equities and other riskier assets erodes demand for the low-yielding Japanese currency. The policy-setting Federal Open Market Committee will announce its decision at 2 p.m. EDT (1800 GMT). Fed Chairman Ben Bernanke will hold a news conference 30 minutes later. "I think the market is a bit ahead of itself on the tapering story," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "It's going to be quiet going into it, then I think it will turn very volatile in the U.S. afternoon following the Fed statement and the press conference," he added. "People generally lack much conviction about the near-term direction and how the markets respond to the Fed." The dollar index, which measures the greenback against a basket of currencies, was down 0.1 percent at 80.549, after earlier hitting a four-month low of 80.498. The dollar slipped 0.1 percent to 95.19 yen, staying above the 93.78 yen level touched last Thursday - its lowest since April 4. Resistance was cited at 96.13 yen, which is the 23.6 percent Fibonacci retracement of the dollar's fall to 93.78 yen on June 13 from 103.73 yen on May 22. The euro edged up 0.1 percent to $1.3401, but against the yen, the euro dipped 0.1 percent to 127.56 yen. Some $1.67 billion in yen had changed hands in the global session ahead of the Fed announcement and $3.1 billion in euros. "It will be a difficult task for the Fed," said Ian Gunner, portfolio manager at Altana Hard Currency Fund. "Tapering is on the table, but at the same time they will try and make it clear this is a process and very much data-dependent." "If the Fed manages to communicate this properly, then we could see the dollar lose some ground against the more riskier currencies. We could also see the dollar/yen climb toward 98-99 yen." Bernanke is also expected to emphasize that a scaling back of its stimulus program would not be akin to tightening and that a rise in the funds rate was a distant prospect. Analysts said the Fed is likely to downgrade forecasts for growth and possibly for inflation as well.
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