FOREX-U.S. dollar falls across the board in thin volume

Tue Jul 23, 2013 4:40pm EDT

Related Topics

* Expectations of loose Fed policy weigh on dollar
    * Japan PM Abe's election win to see dollar/yen trade higher
    * Euro zone PMIs on Wednesday are main focus for the euro

    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 23 (Reuters) - The dollar was broadly weaker
on Tuesday, falling to a one-month low against the euro in thin
trading, as investors continued to scale back bullish bets on
the greenback on the view that the Federal Reserve could reduce
its asset-buying program later than expected. 
    Fed Chairman Ben Bernanke told lawmakers last week the U.S.
central bank still expects to start reducing its massive bond
purchase program later this year, but he left open the option of
changing that plan if the economic outlook shifted. 
    "In the absence of any economic news, positioning has been
driving the FX market," said Brian Dangerfield, currency
strategist at RBS Securities in Stamford, Connecticut.
    "The market is still quite long dollars and in quiet periods
like today, traders are scaling back their positions especially
in the wake of what Bernanke said last week."
    Investors had accumulated dollars the last few months as
Bernanke suggested in May that the Fed could start winding down
its stimulus plan later this year. A reduction in the Fed's bond
purchases would be positive for the greenback because it means
that the U.S. central bank won't be flooding the market with
dollars as much.
    The euro rose to $1.3238, its highest level since June 21,
as some investors pushed it to the 50 percent Fibonacci
retracement of the move from the early April low to the mid-June
high. It was last at $1.3225, up 0.3 percent on the day, rising
for a third straight day.
    Investors are looking to the flash Purchasing Managers'
Index data on Wednesday as worries about euro zone economies are
re-emerging. Analysts said there would probably be selling into
any rebounds in the euro. 
    Trading "is more of a technical move in an otherwise very
thin market amid generally soft data and questions on the timing
of tapering," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington. 
    Bernanke's dovish remarks have emphasized that the U.S.
central bank's bond buying will continue in some form and
interest rates are likely to remain low for the foreseeable
future.
    Benchmark yields have fallen as other top Fed officials have
stressed that the timing of any reduction in the central bank's
$85 billion monthly asset purchases would depend on economic
data.
    As a result, along with some weaker-than-expected U.S. data,
 the dollar has sold off to key support levels. Further downside
will require another round of bad data, analysts said. 
    "The market is getting comfortable with the idea that
tapering is not tightening," said Sean Cotton, vice president
and foreign exchange advisor at Bank of the West in San Ramon,
California.
    The dollar index was last down 0.3 percent at 81.983.
It fell to 81.926, also its weakest since June 21. 
    Analysts, however, said the dollar would likely strengthen
in the coming months against currencies such as the euro,
sterling and the yen because the Fed is expected to be the first
major central bank to make its policy less accommodative. 
    But few anticipate the dollar's rise to be smooth. 
    Benchmark U.S. 10-year Treasury yields, which
have had a robust correlation with the dollar index, have
slipped in recent weeks. They last stood at 2.507 percent,
slightly up on the day but well below the 2.755 percent hit on
July 8, their highest since August 2011.
    The dollar was down 0.2 percent against the yen at 99.43 
yen, recovering from a one-week low of 99.13 yen earlier.
    Analysts said Japanese Prime Minister Shinzo Abe's decisive
upper house election win last weekend would pave the way for
pro-growth fiscal policies and for further Bank of Japan
monetary easing, which would weaken the yen. 
    The dollar was up more than 15 percent versus the yen this
year, and the recent slide in dollar/yen has likely bottomed
out, according to trends in the options market. 
    Analysts said the beginning of holidays has reduced volumes
and volatility, which could result in most currencies trading in
ranges. Some $3.99 billion in euros had changed hands, according
to  Reuters Dealing data on Tuesday, and $2.06 billion in yen.
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