FOREX-Dollar steady as investors seek clarity on Fed policy
* Market awaits signals on Fed's next policy step * Fed expected to keep options open on pace of QE * Dollar index steady, holds above 4-month low By Anirban Nag LONDON, June 19 (Reuters) - The dollar was steady against a basket of currencies on Wednesday with most investors cautious, awaiting more clarity from the Federal Reserve on how long monetary policy will remain ultra-loose. Speculation that the central bank will start tapering its asset-buying stimulus before the end of the year triggered a recent sell-off in global stocks and injected a bout of volatility across markets. That volatility caused the dollar to lose ground to the safe-haven Japanese yen. Analysts and fund managers said the dollar and riskier assets and currencies could benefit if Fed Chairman Ben Bernanke managed to soothe nervous markets. The dollar index was flat at 80.641, holding above a four-month low of 80.500 struck on Thursday. The dollar held steady against the euro at $1.3390, with the single currency hovering just below a four-month high of $1.3416 hit on Tuesday. The dollar was down 0.1 percent at 95.10 yen, staying above the 93.75 yen hit last Thursday, which was its lowest since April 4. Resistance was cited at 96.11 yen, which is the 23.6 percent Fibonacci retracement of the dollar's fall to 93.75 yen on June 13 from 103.74 yen on May 22. Fed policymakers will likely announce that they will continue to buy bonds at a monthly pace of $85 billion, while keeping their options open to scale back the programme later this year if the U.S. labour market improves. The Fed's policy statement is due at 1800 GMT, with Bernanke's news conference half an hour later. "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 towards 98-99 yen." Bernanke is also expected to emphasise that tapering is not tightening and an actual rise in the funds rate is still a distant prospect, analysts said. Growing anticipation that the Fed will pare its purchases led to a sharp rise in longer-dated U.S. Treasury yields over the past six weeks and a selloff in global shares and emerging market assets. Last month, the benchmark yield on 10-year U.S. notes jumped 46 basis points, its biggest one-month jump in nearly 2-1/2 years, according to Reuters data. "It is very much a balancing act for Bernanke. He would want to try and start weaning the markets off free and easy money ... but equally it is about rate expectations for late 2014," said Paul Robson, currency strategist at RBS.
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