June 19, 2013 / 5:21 PM / 4 years ago

FOREX-Dollar falls vs key currencies before Fed announcement

4 Min Read

* Market awaits signals on Fed's next policy move
    * Fed expected to keep options open on pace of bond buying
    * Dollar hits lowest since February against major currencies

    NEW YORK, June 19 (Reuters) - The dollar fell to a
four-month low against major currencies on Wednesday, ahead of
the Federal Reserve's announcement and news conference that
could shed light on the direction of U.S. monetary policy in the
near term.
    Speculation that the Fed might begin slowing its pace of
asset purchases had triggered a recent selloff in global stocks
and sent the safe-haven Japanese yen up more than 5 percent
against the dollar so far this month.
    Analysts said the Fed will likely announce that it will
continue to buy bonds at a monthly pace of $85 billion, while
keeping options open to scale back the program later this year
if the U.S. labor market improves. 
    Any indication that the Fed is unlikely to withdraw stimulus
anytime soon could hurt the dollar, though the currency could
gain against the yen as a rally in equities and other riskier
assets erodes demand for the low-yielding Japanese currency.
    The policy-setting Federal Open Market Committee will
announce its decision at 2 p.m. EDT (1800 GMT). Fed Chairman Ben
Bernanke will hold a news conference 30 minutes later.
    "I think the market is a bit ahead of itself on the tapering
story," said Marc Chandler, global head of currency strategy at
Brown Brothers Harriman in New York.
    "It's going to be quiet going into it, then I think it will
turn very volatile in the U.S. afternoon following the Fed
statement and the press conference," he added. "People generally
lack much conviction about the near-term direction and how the
markets respond to the Fed."
    The dollar index, which measures the greenback against a
basket of currencies, was down 0.1 percent at 80.549,
after earlier hitting a four-month low of 80.498.
    The dollar slipped 0.1 percent to 95.19 yen, staying
above the 93.78 yen level touched last Thursday - its lowest
since April 4. Resistance was cited at 96.13 yen, which is the
23.6 percent Fibonacci retracement of the dollar's fall to 93.78
yen on June 13 from 103.73 yen on May 22.
    The euro edged up 0.1 percent to $1.3401, but against
the yen, the euro dipped 0.1 percent to 127.56 yen.
    Some $1.67 billion in yen had changed hands in the
global session ahead of the Fed announcement and $3.1 billion in
    "It will be a difficult task for the Fed," said Ian Gunner,
portfolio manager at Altana Hard Currency Fund. "Tapering is on
the table, but at the same time they will try and make it clear
this is a process and very much data-dependent."
    "If the Fed manages to communicate this properly, then we
could see the dollar lose some ground against the more riskier
currencies. We could also see the dollar/yen climb toward 98-99
    Bernanke is also expected to emphasize that a scaling back
of its stimulus program would not be akin to tightening and that
a rise in the funds rate was a distant prospect. Analysts said
the Fed is likely to downgrade forecasts for growth and possibly
for inflation as well.

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