* Market awaits signals on Fed's next policy step
* Fed expected to keep options open on pace of QE
* Dollar index steady, holds above 4-month low
By Anooja Debnath
LONDON, June 19 The dollar was broadly steady in
subdued trading on Wednesday as markets awaited the outcome of
the Federal Reserve's rate-setting meeting for clues on the
future course of U.S. monetary policy.
Speculation that the central bank will start tapering its
asset-buying stimulus before the end of the year triggered a
recent sell-off in global stocks and also market volatility
which caused the dollar to lose ground to currencies like the
safe-haven Japanese yen.
Analysts said the dollar and riskier assets could benefit if
Fed Chairman Ben Bernanke manages to pacify nervous markets.
Fed policymakers will likely announce that they will
continue to buy bonds at a monthly pace of $85 billion, while
keeping their options open to scale back the programme later
this year if the U.S. labour market improves.
The Fed's policy statement is due at 1800 GMT with
Bernanke's news conference half an hour later.
"Markets are cautious ahead of Bernanke ... a lot of the
focus will be on the tapering discussion," said Paul Robson,
currency strategist at RBS.
Analysts said Bernanke could try to emphasise that tapering
is not tightening and an actual rise in the funds rate is still
a distant prospect.
"It is very much a balancing act for Bernanke. He would want
to try and start weaning the markets off free and easy money...
but equally it is about rate expectations for late 2014," said
Against a basket of currencies, the dollar was flat at 80.60
, holding above a four-month low of 80.500 touched on
The dollar was down 0.4 percent at 94.89 yen, staying
above the 93.75 yen hit last Thursday, which was its lowest
since April 4. Resistance was cited at 96.11 yen, which is the
23.6 percent Fibonacci retracement of the dollar's fall to 93.75
yen on June 13 from 103.74 yen on May 22.
The dollar held steady against the euro at $1.3392
after the single currency touched a four-month high of $1.3416
on Tuesday. An options barrier was reported at $1.3450.
Growing anticipation that the Fed will pare its purchases
also led to a sharp rise in longer-dated U.S. Treasury yields
over the past six weeks.
Last month, the benchmark yield on 10-year U.S. notes
jumped 46 basis points, its biggest one-month jump
in nearly 2-1/2 years, according to Reuters data.
"I think the market just wants a united message: tapering or
not?" said Bart Wakabayashi, head of forex at State Street
Global Markets in Tokyo. "The uncertainty there has led to some
excess volatility, which has led to people pulling out of some