FOREX-Dollar resilient as Fed tackles 'tapering' fears

Thu Jun 27, 2013 7:37pm EDT

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By Ian Chua

SYDNEY, June 28 (Reuters) - The dollar hovered just below a four-week peak early in Asia on Friday, having lost only a bit of ground after two more Federal Reserve officials sought to play down fears over the central bank's plan to gradually reduce stimulus.

Traders said some last minute positioning ahead of the end of the month and quarter also saw the euro edge off a four-month trough, although the common currency was still headed for its second week of declines.

The dollar index, which tracks the greenback's performance against a basket of major currencies, traded at 82.998 after a flat finish in New York.

It stayed near Thursday's high of 83.171, a peak not seen since the start of the month. The index was on track for its second straight week of gains and its biggest two-week rally since November 2011.

The euro was at $1.3035, having drifted up from a four-week trough around $1.2984. It was flirting with the 61.8 percent retracement level of its May-June rally.

Against the yen, the dollar held on to modest overnight gains at 98.50, while the euro stood at 128.37, having gained 0.9 percent on Thursday.

Investors turned positive on the dollar since Fed Chairman Ben Bernanke last week laid out a roadmap for scaling back its asset buying programme.

However, the thought of the end of easy money had sparked a selloff in equities, government bonds, emerging market assets and commodity currencies.

This has prompted major central bank policy makers to voice their concerns this week. New York Fed President William Dudley and Fed Governor Jerome Powell were the latest to attempt to quell market nerves.

In fact, New York Fed President William Dudley went as far as saying that recent market expectations for an earlier rate rise are "quite out of sync" with the statements and expectations of the policy-making Federal Open Market Committee.

Those comments helped fuel further gains on Wall Street but failed to spark another rout in U.S. Treasuries, suggesting the U.S. bond market is stabilising after a recent sharp selloff.

Analysts at BNP Paribas said the stabilisation in U.S. bonds appeared to be encouraging a cautious rebound in risk positions which should help a number of emerging market currencies and put a squeeze on short positions in commodity currencies.

"We expect this dynamic to continue and we added a short EURUSD recommendation to our pre-existing short GBPUSD trade on Thursday," they wrote in a client note.

Sterling took a knock overnight after downward revisions to GDP, and particularly business investment, bucked the recent trend of improving data. The pound was down at $1.5252, well off the month peak of $1.5751.

Markets are keeping an eye on a slew of Japanese data due this morning including industrial output and retail sales, ahead of the Chicago PMI index, a barometer of Midwest business activity and the final reading of U.S. consumer sentiment for June.