* Selloff loses steam, dollar index off seven-month lows
* Yen hits near four-year trough on euro
* Upbeat U.S. data help offset dovish Fed message
By Ian Chua
SYDNEY, Sept 20 The dollar drifted off a
seven-month low against a basket of major currencies on Friday
as investors unwound some of the bearish trades put on in
reaction to the Federal Reserve's shock decision to maintain its
massive bond-buying stimulus.
The turnaround came as U.S. Treasury yields rose after a
string of upbeat U.S. data suggested that rising market rates,
that had so concerned the Fed, were weighing only modestly on
As a result, the dollar index climbed to 80.365,
pulling up from a seven-month trough of 80.060 plumbed on
Against the yen, the greenback erased all of its Fed-induced
losses to trade near 99.50, well off Wednesday's low of
97.76. The euro retreated to $1.3529 from a 7-1/2 month
peak of $1.3569.
The rebound in the greenback knocked the Australian dollar
to $0.9445 from a three-month peak of $0.9530.
"We think the dollar is likely to recover quickly versus the
lower yielding currencies in the G10," analysts at BNP Paribas
wrote in a client note.
U.S. data on Thursday showed U.S. home resales surged in
August to a 6-1/2-year high and factories grew busier in the
Mid-Atlantic region this month, underscoring recent signs of
gathering economic momentum that's likely to keep traders
speculating about the timing of the Fed taper.
A standout mover was euro/yen, which rallied to a near
four-year high of 134.95, partly because investors
tend to sell the Japanese currency in favour of higher-yielding
assets when risk appetite is strong. It last stood at 134.50.
The Fed on Wednesday confounded many in the market by
keeping its $85 billion monthly asset-buying programme and
sounding super dovish. Market consensus had been for a modest
cut of around $10 billion to the bond-buying stimulus.
The surprise decision sparked a rally in global equities and
emerging market assets. It also led investors and analysts to
push out the timing for when the Fed will begin scaling back
"We now expect the Fed to start tapering in December 2013,
to be completed in June 2014, with the first hike in June 2015,"
analysts at Barclays Capital said.
Many will go back to watching U.S. economic data to gauge
the strength of the recovery and hence chances of the Fed
tempering policy support.
There is no major economic data to speak of on Friday, so
all eyes will be on a speech by Bank of Japan Governor Haruhiko
Kuroda and any comments he might make regarding the Fed's
On Sunday, the outcome of Germany's general election will be
closely watched. Chancellor Angela Merkel looks to secure a
third term but there are doubts that she will be able to
maintain her centre-right coalition, which could complicate her
euro zone policy.