* Fed ties policy to specific economic target
* Fed extends debt-buying, in line with expectations
* Yen down across the board on prospects of more easing
By Anooja Debnath
LONDON, Dec 13 The dollar rose on Thursday,
recovering from earlier falls, as traders booked profits on
short dollar positions after the Federal Reserve's decision to
add more stimulus was broadly as expected.
Strategists said future dollar moves were likely to be
driven by developments in efforts to avert the U.S. "fiscal
cliff" and increasingly by U.S. data after the Fed decided on
Wednesday explicitly to link its monetary policy path to
unemployment and inflation.
The dollar was up 0.08 percent against a basket of
currencies at 79.875, recovering from a one-week low of
79.711 hit after the Fed's decision on Wednesday.
The Fed matched market expectations by saying it would keep
buying $45 billion of government bonds each month after its
"Operation Twist" programme expires, in addition to buying $40
billion a month in agency mortgage-backed securities.
It said interest rates would remain near zero until
unemployment falls to at least 6.5 percent.
"While labour market data has always been an important
driver for the Fed, the fact that they have formalised a
specific economic target changes the dynamics of currency
markets," said Ian Stannard, head of European FX strategy at
With the Fed actively targeting economic data, the dollar
could gain if data shows any sign of improvement, he said.
"I don't think we can translate further quantitative easing
into a weaker dollar."
The euro was down 0.1 percent at $1.3058, having hit
a session low of $1.3040. However, it held above near-term chart
support at $1.2923, its 55-day moving average.
Strategists, however, said positive developments in the euro
zone and successful bond auctions in Italy
could support the euro in the near term.
The European Union reached a deal to make the European
Central Bank the bloc's top banking supervisor -- a move seen as
a step closer to resolving the debt crisis.
But traders warned currency moves could be choppy in the
approach to year-end as trading volumes decline.
"The moves now are basically people unwinding positions...
any such moves are now exaggerated by thin volumes as we move
into year-end," said Neil Mellor, currency strategist at Bank of
New York Mellon.
The dollar was at 83.47 yen, down 0.2 percent on the
day, having hit a near nine-month high of 83.67 yen in Asian
The dollar was expected to rise further against the Japanese
currency on expectations the Bank of Japan will ease monetary
The BOJ meets next week, after Sunday's election which looks
set to produce a government dominated by the opposition Liberal
Democratic Party. 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 the low-yielding Japanese currency.
Earlier on Thursday the Swiss franc rose against
the euro, after the Swiss National Bank maintained its cap on
the exchange rate at 1.20 francs per euro but reiterated it was
prepared to buy foreign currency in unlimited amounts to
The euro fell to a session low of 1.2089 francs, down from
around 1.2117 francs before the announcement.