* Dollar index falls to two-month lows
* Markets eye Fed meeting outcome due 1800 GMT
* China manufacturing data around 0100 GMT also in focus
By Ian Chua
SYDNEY, May 1 The dollar languished at a
two-month low against a basket of currencies in early Asian
trade on Wednesday as investors wagered the U.S. central bank
will recommit to its aggressive stimulus programme, with a
chance of expanding it even.
The dollar index was at 81.701 , having shed
more than 0.5 percent at one stage to a low of 81.598. The break
below 81.744, the 38.2 percent retracement of its January-April
rally, has opened the way to 81.204, the 50 percent retracement
Dollar bears shrugged off a rise in U.S. home prices and a
rebound in U.S. consumer confidence, focusing instead on an
unexpected contraction in Midwest business activity.
The data came as Federal Reserve policymakers gathered for a
two-day meeting amid talk the central bank might have to add
more stimulus to help widen a still patchy economic recovery.
"We see the risks as titled on the dovish side as the Fed is
now effectively falling short on both its employment and
inflation objectives," said Vassili Serebriakov, strategist at
"We expect this week's meeting to support our view that no
QE3 tapering is likely until year-end and that the risk is for
more, not less, easing."
Serebriakov said such an outcome would support the view that
the U.S. dollar will be used as a key funding currency for risk
trades, along with the yen.
The dollar drifted lower on the yen to 97.43, but
remained not far from a 4-year high near 100 reached last month.
The yen had been under intense pressure thanks to the Bank of
Japan's own radical stimulus programme.
The greenback lost ground against the euro, which climbed to
a two-week high near $1.3187. The common currency now
faces tough resistance around $1.3200, a level that capped it
The euro's strength was surprising as euro zone data has
been just as disappointing as that from the U.S. and added to
pressure for a cut in interest rates by the European Central
Bank on Thursday.
Among the best performers, the Australian dollar extended
its gains to a two-week high of $1.0386. It was
The Aussie appeared to be gearing up for another go at stiff
resistance seen near $1.0400, an area containing several key
chart levels including the 50 percent retracement of its April
Traders said only an upside surprise in China's
manufacturing data, due at 0100 GMT, will give the Aussie enough
momentum to break higher. China is Australia's single biggest
However, chances are slim given a preliminary report by HSBC
last month showed growth in China's vast factory sector dipped
in April as new export orders shrank.