FOREX-Dollar weak on caution before Fed decision, U.S. data

Wed Jul 31, 2013 8:03am EDT

Related Topics

* Dollar falls to one-month low versus yen

* Caution before Fed decision and U.S. GDP, ADP data

* Australian dollar, Swedish crown extend Tuesday's falls

By Jessica Mortimer

LONDON, July 31 (Reuters) - The dollar fell to a one-month low against the yen on Wednesday on caution before a Federal Reserve policy statement which may hint at when stimulus will be reduced but could also push back bets on when interest rates will rise.

Before the statement, focus will be on U.S. gross domestic product data at 1230 GMT and ADP private payrolls at 1215 GMT, which are important because the Fed has suggested the pace and timing of stimulus reduction will depend on data.

The dollar eased 0.4 percent against the yen to 97.585 yen , its lowest since June 27.

The dollar index, which tracks the dollar against a basket of major currencies, was steady at 81.846. It stayed near Monday's low of 81.499, its weakest in nearly six weeks.

The dollar's direction is likely to be set by how markets interpret the Fed's post-meeting statement, even though it is expected to keep buying $85 billion of bonds a month for now.

Some in markets speculate the central bank could adjust the economic thresholds it has laid out to guide expectations of when rates will rise, which analysts said would hurt the dollar.

But the dollar would benefit if the statement focuses on plans to "taper" asset purchases.

"The market might be expecting something too dovish from the Fed and this could give the dollar some support," said Paul Robson, currency strategist at RBS, adding that month-end flows may also drive currency direction on Wednesday.

The Fed statement is due at 1800 GMT but, unlike after the last policy meeting, Chairman Ben Bernanke will not hold a news conference to give any further guidance.

Many traders said they were inclined not to have any significant dollar positions before the Fed decision, which one London-based trader described as "a bit of a lottery". Month-end flows influence currency movements, however.

The euro was steady at $1.3253 but stayed near a six-week high of $1.33025 hit on Tuesday.

AUSSIE FALLS FURTHER

The Australian dollar hit a three-year low of A$1.4716 per euro, extending Tuesday's falls after comments from the head of the central bank were seen as increasing the chances of a rate cut next week. It also fell 0.3 percent against the U.S. dollar to $0.9031.

The Swedish crown fell further after Tuesday's weak growth data was seen increasing the risk of a rate cut. The euro hit a two-week high of 8.7260 crowns.

Analysts at Danske Bank, however, said the euro had been "significantly overbought" relative to their 8.56 crown fair value estimate, based on short-term interest rate spreads.

They said the data was unlikely to be weak enough to trigger a rate cut in Sweden, adding a dovish message after Thursday's European Central Bank meeting "should weigh on the euro".

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.