SYDNEY/TOKYO May 1 The dollar languished near a
two-month low against a basket of currencies on Wednesday as
investors wagered the U.S. central bank will recommit to its
aggressive stimulus programme, or even possibly expand it.
The dollar index was at 81.726 , after having
fallen to a low of 81.598 on Tuesday. 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 level.
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.
This data came as Federal Reserve policymakers gathered for
their monthly two-day meeting amid talk the central bank might
have to add more stimulus to help broaden a still-patchy
"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."
That is a sea change from just about a month ago, when most
market players believed the Fed's next move would be to scale
back easing, rather than, doing more of it.
The dollar drifted lower on the yen to 97.32, about
0.1 percent below the late U.S. levels after having hit two-week
low of 96.99 yen the previous day.
Although the yen had been under intense pressure thanks to
the Bank of Japan's own radical stimulus programme, yen bears
were abandoning their bets for now as the currency has a strong
support at the big number of 100 due to buying from Japanese
exporters and option players.
"At the moment, the market is considering the 97-100 yen
range. But if upcoming U.S. economic data continues to
disappoint, there's risk the dollar/yen's trading range will
ratchet down to say 95-98," said Yoshio Takahashi, analyst at
Barclays Capital in Tokyo.
Among others, many traders are looking to the manufacturing
index from the Institute of Supply Management at 1400 GMT and
Friday's employment report.
The greenback lost ground against the euro, which climbed to
a two-week high near $1.3187 on Tuesday and last stood at
$1.3166, flat from late New York levels. The common
currency now faces tough resistance around $1.3200, a level that
capped it last month.
The currency took Moody's credit downgrading of Slovenia to
junk status in its stride.
The euro's strength has surprised markets because euro zone
data has been as disappointing as the U.S. indicators. The
euro's strength added to pressure for a cut in interest rates by
the European Central Bank on Thursday.
But some analysts said that while a rate cut could see the
euro initially fall, announcing further easing measures would be
interpreted as a positive move by the central bank and this
could lend the euro support.
The Australian dollar stayed near a two-week high of $1.0386
hit on Tuesday. It stood little changed at $1.0371,
unable to extend gains after China's official purchasing
managers' index (PMI) falling slightly despite economists'
forecast of a small uptick, although it stayed in expansion
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
Trade was subdued in Asia with many markets, including
Singapore and Hong Kong, on holiday for May Day and is likely to
remain so in Europe, where several markets will be closed as