* Fed may bolster dovish forward guidance
* Dollar/yen falls as Nikkei slides
* Plenty of event risks: ECB and BoE meetings, major data
By Gertrude Chavez-Dreyfuss
NEW YORK, July 29 The dollar fell to a one-month
low against the yen and a five-week trough versus a basket of
major currencies on Monday on the expectation that the Federal
Reserve will reiterate its commitment to keep interest rates low
for some time.
The euro meanwhile slipped 0.2 percent to $1.3252.
It erased short-lived gains which failed to pierce $1.33, a
closely watched level since it was a trigger for options
contracts which traders said expire later in the day.
The Fed's statement on Wednesday after the U.S. central
bank's two-day policy meeting will be scrutinized for fresh
clues about the timetable for winding down its bond-buying
program, running at $85 billion per month.
The U.S. currency had rallied in May and June when Fed
Chairman Ben Bernanke first indicated that it may start reducing
the monetary stimulus for the economy. Less stimulus could prod
a rise in interest rates, potentially making the dollar more
attractive for investors.
Dollar gains, however, started to fade when Bernanke a few
weeks ago indicated that the Fed won't cut back on its bond
purchases as long as growth remains sluggish and inflation is
not a threat.
"The dollar is mildly-offered today and it is in a still
consolidative mode," said Greg Moore, currency strategist, at TD
Securities in Toronto. "I think all the Fed expectations have
already been priced in the dollar and we will continue to trade
in this narrow range until we get some U.S. data releases."
A basket of major currencies, known as the dollar index
, on Monday fell as low as 81.499, the lowest since June
20 before recovering to trade little changed at 81.733. Last
week, the dollar index feel 1.2 percent, markits its third
straight week of losses.
"Investors are trimming long dollar positions going into
the Fed meeting as they are expecting the Fed not to just have a
dovish bias but also a pledge to keep rates low," said Alvin
Tan, currency strategist at Societe Generale.
"But we think that tapering of stimulus will nonetheless
start and that will be the overriding factor. Any dip in the
dollar is a buying opportunity."
Against the yen, the dollar fell 0.4 percent to 97.88 yen.
The greenback earlier dropped to 97.61 yen, its lowest since
Boris Schlossberg, managing director of FX strategy at BK
Asset Management in New York said the yen benefited from
safe-haven flows in the wake of a 3 percent slide in the Nikkei.
Investors were also concerned about Japan's fiscal reforms.
"(Prime Minister Shinzo) Abe...has to walk a fine line
between assuring investors that proper fiscal reforms will take
place to mitigate the country's massive US$5 trillion debt,
while at the same time he must pursue an aggressive expansionist
policy in order to continue stimulating the economy," said
On Friday, U.S. payrolls report will be released with
forecasts for 185,000 jobs being added in July and a dip in the
jobless rate to 7.5 percent. A strong report would
support the case for the Fed to start rolling back its stimulus
in September and help the dollar.
"Scope for the unemployment rate to fall perhaps 0.2
percentage points in Friday's labour report might see the dollar
end the week more positively," said Tom Levinson, currency
strategist at ING.
ECB, BOE MEET
Besides the Fed, this week both the Bank of England and the
European Central Bank are holding policy meetings.
The BoE and ECB are expected to repeat or refine their
respective versions of forward guidance that policy will stay
loose for an extended period. This could see bids for the dollar
return as the Fed is still expected to be the first major
central bank to exit ultra-loose monetary policy.