* 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 Anirban Nag
LONDON, June 19 The dollar was steady against a
basket of currencies on Wednesday with most investors cautious,
awaiting more clarity from the Federal Reserve on how long
monetary policy will remain ultra-loose.
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 injected a bout of
volatility across markets. That volatility caused the dollar to
lose ground to the safe-haven Japanese yen.
Analysts and fund managers said the dollar and riskier
assets and currencies could benefit if Fed Chairman Ben Bernanke
managed to soothe nervous markets.
The dollar index was flat at 80.641, holding above a
four-month low of 80.500 struck on Thursday. The dollar held
steady against the euro at $1.3390, with the single
currency hovering just below a four-month high of $1.3416 hit on
The dollar was down 0.1 percent at 95.10 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.
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.
"It will be a difficult task for the Fed," said Ian Gunner,
portfolio manager at Altana Hard Currency Fund. "Tapering is on
the table but at the same time they will try and make it clear
this is a process and very much data-dependent."
"If the Fed manages to communicate this properly, then we
could see the dollar lose some ground against the more riskier
currencies. We could also see the dollar/yen climb towards 98-99
Bernanke is also expected to emphasise that tapering is not
tightening and an actual rise in the funds rate is still a
distant prospect, analysts said.
Growing anticipation that the Fed will pare its purchases
led to a sharp rise in longer-dated U.S. Treasury yields over
the past six weeks and a selloff in global shares and emerging
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.
"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
Paul Robson, currency strategist at RBS.