FOREX-Dollar weakens ahead of Fed outcome; euro up on strong data

Tue Sep 17, 2013 2:09pm EDT

Related Topics

* Euro gains as German ZEW index at highest since April 2010
    * Rise limited as focus centers on Fed meeting
    * Markets expect any Fed tapering of stimulus to be modest


    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 17 (Reuters) - The dollar struggled against
most currencies on Tuesday as investors were reluctant to make
fresh bets ahead of the outcome of a Federal Reserve meeting
expected to result in a reduction of its massive stimulus
program.
    The euro, on the other hand, rose after an upbeat German
sentiment survey. The ZEW think-tank's poll of economic
sentiment rose to its highest since April 2010, suggesting a
growing sense of stability that could support German Chancellor
Angela Merkel's chances of winning a third term in Sunday's
elections. 
    That enabled the euro to hit the day's highs against the
dollar at $1.3369. 
    The euro's gains, however, were limited in the run-up to the
Fed's two-day policy meeting, which started on Tuesday. A recent
Reuters poll showed economists expect the Fed to reduce its $85
billion in monthly asset purchases by a relatively modest $10
billion. 
    The dollar index, a gauge of the greenback's value against
six major currencies, fell 0.2 percent to 81.142,
declining for a fifth straight session.
    "The recent weak undertone of the U.S. dollar as policy
makers debate the scope and extent of tapering the Fed's
quantitative easing has provided a reprieve to emerging markets
central bankers who were battling capital outflows during May
and June," said Samarjit Shankar, director of market strategy at
BNY Mellon in Boston.
    Analysts said rate hike expectations hold the key for the
dollar because of their impact on short-term U.S. bond yields.
    The dollar retreated on Monday after former Treasury
Secretary Lawrence Summers withdrew his name from the list of
candidates to lead the Federal Reserve, reducing the chances of
a rapid cut in monetary stimulus.
    
   
    
    The euro last traded up 0.2 percent at $1.3359,
nearing a peak of $1.3385 hit on Monday, its highest since late
August. 
    Against the Japanese yen, the dollar was last up 0.1
percent at 99.17 yen, but was expected to stay below chart
resistance around 100 yen.
    The dollar, however, remains undervalued against the yen at
current prices, with a fair value of 104.85 yen, according to
data from BNP Paribas. The increase in the currency pair's value
corresponds to the rebound in Japan's equities this month.
    Weakness in the yen normally is viewed as positive for the
Japanese stock market where many companies traded are exporters,
which benefit from a soft currency.
    The dollar briefly pared gains against the yen after a
report showed U.S. consumer prices barely rose in August, which
eases the way for the Fed to start trimming its bond purchases.
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    A separate report showed foreign investors rediscovered a
taste for long-term U.S. securities as Japan's and China's
holdings of U.S. government bonds increased. In June, U.S.
Treasuries suffered a record outflow. 
    According to Treasury data released on Tuesday, foreign
holdings of long-term U.S. securities increased by $31.1 billion
in July after plunging by $67 billion the prior month.
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