* Dollar falls as traders' focus turns to Fed tapering
* Fed seen reducing $10 bln in monthly bond purchases
* Turkish, South African rate hikes offer brief respite
By Richard Leong
NEW YORK, Jan 29 The dollar weakened against the
yen and Swiss franc on Wednesday as traders reckoned emergency
action taken to stall the fall of the Turkish currency would not
be enough to calm jitters over global emerging markets ahead of
an expected U.S. Federal Reserve move to pare stimulus.
The greenback initially rose against the yen and Swiss
francs - traditional safehaven currencies - after a surprisingly
aggressive interest rate hike by the Turkish central bank in a
bid to shore up its currency, which had shed over 3 percent
But the dollar's gains faded as doubts surfaced whether
these emergency efforts could offset the political and economic
problems that could bog down faster-growing economies. That view
muted any positive impact when South Africa later unexpectedly
raised its interest rates.
The South African Reserve Bank became the third key emerging
market central bank this week to tighten its policy rate,
raising its key rate by half a percentage point to 5.5 percent.
Earlier, the Turkish central bank raised all its interest
rates in dramatic fashion with its overnight lending rate
jumping to 12 percent from 7.75 percent.
"There are a lot of political and financial fires
regionally," said Dean Popplewell, chief currency strategist at
Oanda in Toronto. "Emerging market central banks have to be
aggressive, but by being so aggressive, that could eventually
impact local economic growth, bond yields and stock markets."
Renewed worries about the troubles in emerging markets
possibly rippling across the globe spurred fresh selling in
Turkish lira, South African rand and revived safehaven bids for
the Japanese yen and Swiss franc, analysts said.
In this flight for safety, the dollar slumped against those
safehaven currencies but improved against the emerging market
The dollar's decline against major currencies was mitigated
by an expected decision from the Federal Reserve at about 2 p.m.
(1900 GMT) to further shrink its monthly bond purchase program.
In December, U.S. central bank policy-makers surprised some
investors by paring its third round of quantitative easing by
$10 billion in January to $75 billion.
Analysts forecast the Federal Open Market Committee, the
central bank's policy-setting group will taper by another $10
billion in February to $65 billion despite the recent market
"A lot of people think the Fed won't be swayed by this,"
After recovering another half a percent against the yen
overnight, the dollar turned 0.7 percent lower at 102.26 yen
, holding above the seven-week low set on Monday.
The dollar edged down 0.2 percent against the Swiss franc at
The dollar index was little changed at 80.577,
pausing after two days of gains.
"The safehaven strategy is very much in vogue this morning,"
Investors favoring less risky assets also piled money into
U.S. government debt, sending benchmark yields down
to 2.717 percent and exerting downward pressure on the dollar,
The greenback on the other hand managed a 0.2 percent gain
against the euro at $1.3644.
Against emerging market currencies, the dollar rebounded
against the Turkish lira at 2.256 lira to the dollar
after it traded as low as 2.166 lira initially on Turkey's rate
The dollar continued to strengthen against the South African
rand as it climbed 2 percent to 11.17 rand per dollar.
The dollar rose to a five-year high against the rand last week.