FOREX-Dollar rises vs yen, slips vs euro after Fed cuts bond buys

Wed Dec 18, 2013 2:44pm EST

* Fed cuts bond-buying but stresses easy policy

* Yen pressured as Japan posts 17th straight trade deficit

NEW YORK, Dec 18 (Reuters) - The dollar rose against the yen on Wednesday after the Federal Reserved surprised markets by trimming its bond buying program and said it expects to keep reducing it if the economy continues to improve.

But the euro recouped losses against the dollar as the Fed sought to temper its move by suggesting its key interest rates would stay lower for even longer than previously promised.

"The forward guidance from the Fed has offset the tapering announcement," said Richard Franulovich, senior currency strategist at Westpac in New York.

"The Fed has come along and said we won't be hiking until we're well past 6.5 percent in the unemployment rate. That pretty much did it for the dollar."

The dollar rose 0.7 percent to 103.36 yen, having climbed to a session peak of 103.66 yen after the Fed announcement.

In what amounts to the beginning of the end of its unprecedented support for the U.S. economy, the central bank said it would reduce its monthly asset purchases by $10 billion, bringing them down to $75 billion. It trimmed equally from mortgage and Treasury bonds.

"You can call this tapering, but they still haven't given us a real end point," said Axel Merk, president of Merk Investments in Palo Alto, California.

"They're just caving in to market pressure to do something. But real tapering would have involved giving an end point for when they will stop increasing the balance sheet. They're still giving the impression that they'll be late raising rates, so I'm not sure how hawkish this really is."

Further pressuring the yen were data showing Japan posted a deficit of 1.29 trillion yen ($12.56 billion) in November, marking a record 17 straight months of deficits as a weak yen inflated the cost of imported fuels.

The euro last traded up 0.2 percent at $1.3792, while the dollar index, which tracks the greenback versus a basket of six currencies, slipped 0.2 percent to 79.945.

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