FOREX-Dollar near 6-week low after no tapering hint from Fed

Wed Jul 31, 2013 11:05pm EDT

Related Topics

* Dollar softer after Fed gives no stimulus exit details

* Dollar/yen manages to stay above important Ichimoku support

* ECB, BoE meetings expected to keep forward guidance on rates

* Aussie plumbs 3-year lows

By Ian Chua and Hideyuki Sano

SYDNEY/TOKYO, Aug 1 (Reuters) - The U.S. dollar wallowed near six-week lows against a basket of major currencies on Thursday after the Federal Reserve gave no fresh hints that it was preparing to scale back stimulus at its next meeting in September.

The Fed said it would keep buying $85 billion in mortgage and Treasury securities per month and noted the potential dangers of inflation running too low, while calling the pace of economic growth "modest" rather than "moderate," as it had consistently for most of the past year.

"The Fed seems to have downgraded their overall economic assessment, thus capping the dollar," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The dollar index, which tracks the greenback's performance against a basket of major currencies, last stood at 81.777 , slightly above late U.S. levels but still not far from a low of 81.407 touched on Wednesday.

But many economists still expect the Fed to begin slowing its asset-buying programme as early as next month, especially in light of data showing U.S. economic growth was not quite as weak as expected in the second quarter.

"The Fed sounded a bit more dovish on the economy... just enough to keep the dollar from going too far on the back of stronger data. In fact, you saw yields in the U.S. go lower overnight. That leaves us still waiting for other major central banks," said Greg Gibbs, senior strategist at RBS in Singapore.

Traders also say a strong reading in Friday's U.S. employment data could cement expectations of a reduction in the Fed's stimulus in September.

Against the yen, the dollar managed to hold above important support from Ichimoku cloud bottom near 97.50.

It got a further boost after China's official manufacturing data showed a small improvement, boosting Asian shares.

The dollar last traded at 98.27 yen, up 0.4 percent from late U.S. levels, off Wednesday's five-week low of 97.585.

TALKING DOWN THE EURO?

As the dollar sagged, the euro reached a six-week high around $1.3345, but the common currency later eased back to $1.3276 with investors wary of getting too carried away ahead of policy meetings at the European Central Bank and Bank of England later on Thursday.

The ECB is expected to hold off on further stimulus but is seen standing by last month's forward guidance, expecting rates to stay at 0.5 percent or lower for an "extended period".

"When the euro has risen, ECB Governor (Mario) Draghi often tries to rein it in. I suspect a euro around $1.33 would be a burden for euro zone countries other than Germany. So he may try to talk down the euro a bit," said Mitsubishi Bank's Uchida.

The big mover was the Australian dollar, which skidded towards 89 U.S. cents in thin trade, reaching its lowest in three years.

The Aussie fell as far as $0.8910 on Wednesday and was on track to end the week down more than 3 percent.

Although the currency drew some comfort from the Chinese manufacturing data, it remained vulnerable at $0.8949, flat on the day, with the next major level seen at the August 2010 trough of $0.8770.

Traders said stops were triggered below 88.00 yen , which took the Aussie to 87.42 yen, it lowest level this year. That sell-off weighed heavily on the commodity currency broadly.

The Aussie was already having a bad week following dovish comments from Reserve Bank of Australia (RBA) Governor Glenn Stevens on Tuesday, which led the market to not only price in a cut in rates next week, but a second easing before year-end.

"The Aussie is clearly on its knees, in particular we think Stevens gave the green light for the currency to go lower," said Su-Lin Ong, senior economist at RBC in Sydney.

"When you get that and generally disappointing Chinese data, the U.S. continuing to point towards a pick up in the economy, it's a whole confluence of factors that keeps downward pressure on the currency."

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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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