* Dollar index near 4-month low before Fed policy decision
* Fed expected to continue tapering its bond-buying stimulus
* Focus on possible tweak to wording of forward guidance
(Updates levels, adds comments)
By Hideyuki Sano
TOKYO, March 19 The dollar stood near its lowest
level in more than four months against a basket of currencies on
Wednesday, on some trepidation ahead of Janet Yellen's inaugural
policy review as the Federal Reserve's chief.
The dollar, however, climbed against the Chinese yuan, which
fell past 6.20 per dollar for the first time since
The yuan has fallen this year as the People's Bank of China
engineered the weakness via state banks to stamp out speculative
money betting on one-way yuan appreciation.
The dollar index stood at 79.439, not far from
a 4-1/2-month low of 79.268 touched last Thursday. In the past
two years, there has been strong support for the index around
The Fed is widely expected to continue to reduce the size of
its monthly bond purchase programme by $10 billion at the end of
its two-day meeting later in the day, the first policy review
since Yellen took the helm at the world's most powerful central
Traders are keenly focused on the Fed's forward guidance on
policy, with many expecting the Fed to reassure markets that
interest rate hikes are still a long way off despite the
unemployment rate easing faster than expected.
The Fed previously said that it would not raise interest
rates until joblessness fell to at least 6.5 percent, a pledge
that policymakers thought would hold until at least mid-2015.
But that rate hit a five-year low of 6.6 percent in January,
before rising to 6.7 percent in February.
Expectations that Yellen will pursue a broadly dovish stance
have helped rein in U.S. Treasury yields, which in turn
undermined the attraction of the dollar for bond investors.
"Many investors had probably expected the dollar to
strengthen this year because the U.S. economy looked in better
shape than others," said Katsunori Kitakura, associate general
manager of market making at Sumitomo Mitsui Trust Bank.
"But their positioning has probably been damaged by the
Ukraine crisis and poor economic data due to bad weather, and
that's probably a reason for the dollar's struggles recently,"
The yen held onto much of its recent gains. The dollar edged
up 0.1 percent to about 101.58 yen, still not very far
from a one-month low of 101.20 yen hit on March 3.
A trader for a European bank in Tokyo said dollar bids and
offers were mixed on the downside, adding that there were some
stop-loss dollar offers around 101.00 yen.
The yen showed little reaction to data showing that Japan
logged a larger-than-expected trade deficit in February.
Tensions in Ukraine remain a focal point, although investor
anxiety has eased somewhat after Russian President Vladimir
Putin said on Tuesday that he did not plan to seize other
regions of Ukraine, a day after Crimean citizens voted to be
annexed by Moscow.
The euro fetched about $1.3921, down 0.1 percent on
the day but not far from a peak of $1.3967 hit on Thursday, its
highest level in 2-1/2 years.
Although the single currency was pitched by many banks at
the start of 2014 as one of this year's likely losers, it has
drawn strength from a recovery in the euro zone, the currency
bloc's strong current account balance and an absence of fresh
easing steps from the European Central Bank.
The single currency has also quickly pared its losses
triggered on Tuesday by a sharp drop in Germany's ZEW survey of
investor and analyst sentiment, which was due largely to the
The Australian dollar briefly touched a three-month high of
$0.9138, supported by a return of risk appetite. It
later pared gains and was last down 0.1 percent at $0.9119.
(Additional reporting by Masayuki Kitano in Singapore; Editing
by Chris Gallagher)