FOREX-Dollar drops broadly as Fed leaves stimulus program intact

Wed Jul 31, 2013 3:45pm EDT

Related Topics

* Dollar drops as Fed leaves bond buying program in place
    * U.S. GDP grows 1.7 percent in 2nd quarter
    * U.S. private sector adds 200,000 jobs in July
    * Focus shifts to ECB, BoE and U.S. payrolls data

    By Julie Haviv
    NEW YORK, July 31 (Reuters) - The dollar fell broadly on
Wednesday after the Federal Reserve refrained from offering any
indication that a reduction in the pace of its stimulus program
was imminent despite upbeat U.S. economic growth and
private-sector jobs data.
    After a two-day meeting, the Fed said the economy continues
to recover but is still in need of support. 
    For now, the Fed will keep buying $85 billion in mortgage
and Treasury securities per month in its ongoing effort to
bolster an economy still challenged by federal budget-tightening
and weak growth overseas.
    The Fed's bond buying program is negative for the dollar as
it is tantamount to printing money and dilutes its value.  
Those bullish on the dollar are eager for less stimulus as that
could prod U.S. interest rates higher and make the greenback
more attractive to investors.
    There were "some subtle changes in the format of the ensuing
policy statement and on balance it appears that the central bank
 has edged ever so slightly away from reducing bond purchases,"
said Andrew Wilkinson, chief economic strategist at Miller Tabak
& Co. in New York.
    "Today ... the sense that easy money is here to stay will
likely permeate investor sentiment," he said.
    Buoyed by a status quo Fed, the euro reached $1.3344, its
highest since June 19. In late afternoon trade, the euro was at
$1.3328, up 0.5 percent on the day.
    The dollar index, which tracks the greenback against a
basket of six currencies, was down 0.24 percent at 81.631
.  The index was on track for a second consecutive monthly
decline, with the euro gaining for a second straight month. 
    The Fed's failure to signal clearly the chance of a stimulus
taper in September caused the dollar to lose ground, said Joe
Manimbo, senior market analyst at Western Union Business
Solutions in Washington D.C. 
    "On the brighter side, the Fed acknowledged modest growth
during the first half of the year and more improvement in the
job market," he said. "On the other hand, Fed officials also
acknowledged concerns about low inflation and high unemployment
which could pose potential impediments to a near-term taper." 
    The dollar earlier found support from upbeat economic data  
 
showing the U.S. economy grew at an annualized clip of 1.7
percent in the second quarter. Also, the U.S. private sector
added 200,000 jobs this month, above forecasts of 180,000.
 
    Against the yen, the dollar fell 0.3 percent to 97.74 
yen after earlier dropping to 97.56, its lowest in a month. 
    The U.S. currency rallied in May and June after Fed Chairman
Ben Bernanke said on May 22 that the Fed could cut back on its
bond purchases by September. Bernanke subsequently backtracked,
however, saying the Fed would keep its stimulus program in place
if U.S. growth stayed sluggish.
    With the Fed meeting is out of the way, foreign exchange
market participants will focus on Thursday's European Central
Bank and Bank of England policy meetings.
    On Friday, the U.S. Labor Department will release its July 
nonfarm payrolls report. An upbeat jobs report should buoy the
dollar, as it will heighten expectations the Fed will lower the
amount of its monthly bond purchases this year. The dollar
should drop if the opposite holds true.
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