* Fed's "QE4" spurs broad dollar weakness
* Euro near highest in a week, pound in six weeks, Aussie in
* Fed ties policy to specific econ target; extends
* Yen down across the board, even against USD
* BOJ under intense pressure to ease more decisively
By Hideyuki Sano
TOKYO, Dec 13 The dollar was on defensive on
Thursday after the U.S. Federal Reserve unveiled a fresh
bond-buying stimulus programme but the yen languished at 8
1/2-month lows against the U.S. currency on expectations of more
money printing in Japan.
The Fed surprised markets by explicitly linking its policy
path to unemployment and inflation, but that had little
immediate impact because the Fed's latest economic projections
suggested no change in its previous pledge to keep rates near
zero until mid-2015.
"We still hold the view that the Fed has fully delivered,
and that the numerical targets set a high threshold for the
eventual Fed policy exit, which still remains in a very distant
future," said Vassili Serebriakov, a strategist at BNP Paribas.
"This implies the Fed is on course to expand its balance
sheet substantially, a regime consistent with a weak USD
The dollar index slipped to one-week low of 79.711
after the Fed's decision on Wednesday and last stood at 79.92,
flat from late U.S. levels, with a six-week low of 79.568 seen
as an immediate support.
As expected, the Fed said it will keep buying $45 billion of
government bonds each month after 'Operation Twist' programme
expires this month, in addition to buying $40 billion a month in
agency mortgage-backed securities.
Total monthly buying will be funded by essentially creating
new money, so the Fed's $2.8 trillion balance sheet will likely
increase by around 40 percent in a year.
While the spectre of more money printing weighs on the
dollar, how much that stimulus will help the U.S. economy is an
open question, with some market players expecting diminishing
impact from the Fed's repeated quantitative easing.
"I can't remember shares falling on the day of announcement
of previous QE. U.S. bonds also fell even though what the Fed
will do is to improve the market's supply-demand dynamics," said
Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
"The market's reaction raises concerns that the market may
be becoming more worried about the policy's side effect, which
includes deterioration in the Fed's balance sheet," he added.
U.S. shares ended flat while long-dated U.S.
bond prices fell, with 30-year bond yield hitting a
As the dollar wilted, the euro hit one-week high of $1.3098
on Wednesday and last stood at $1.3061, little changed on
the day, and not far from seven-week high of $1.3127 hit last
The euro had additional support after former Italian prime
minister Silvio Berlusconi, who roiled the nation last week by
abruptly withdrawing support for Prime Minister Mario Monri's
technocrat government, offered to stand back and suggests Monti
could become centre-right's candidate.
The Australian dollar also hit two-month high of $1.0585
and last stood at $1.0547, while the British pound also
hit six-week high of $1.6173 before easing slightly to $1.6130
The yen, however, bucked the trend and weakened against the
dollar, as market players ramped up selling ahead of potentially
yen-negative events in coming days.
The dollar rose 0.5 percent to 83.59 percent, edging
near its March high of 84.187 yen.
The Bank of Japan's Tankan survey is out on Friday and will
likely show sentiment among manufacturers deteriorated in the
three months to December, adding to calls for bolder action from
the BOJ to stimulate the world's third biggest economy.
The BOJ meeting will take place after Sunday's election
which looks set to see the opposition Liberal Democratic Party
clinch a resounding victory. LDP leader Shinzo Abe has been
pushing the BOJ for more powerful monetary stimulus.
Part of the reason for the rise in dollar/yen was higher
U.S. Treasury bond yields, which makes the dollar relatively
more attractive against its low-yielding Japanese peer.
"Dollar/yen has been moving up for a little while now and
you're seeing the trend continue. It gets moved a fair bit by
U.S. yields and those moved up despite what the Fed did, shows
you a bit of market positioning," said Joseph Capurso, a
strategist at Commonwealth Bank.