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FOREX-Dollar falls vs euro day after Fed boosts stimulus
December 13, 2012 / 5:00 PM / in 5 years

FOREX-Dollar falls vs euro day after Fed boosts stimulus

* 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

NEW YORK, Dec 13 (Reuters) - The dollar fell for the fourth straight day against the euro on Thursday as investors digested the Federal Reserve’s announcement of further stimulus on Wednesday which is likely keep the U.S. currency weak for some time.

The Fed, after its policy meeting ended on Wednesday, matched market expectations by saying it would keep buying $45 billion of government bonds each month after its “Operation Twist” program 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.

Without higher rates or the Fed scaling back the amount of available dollars in the economy, the dollar should remain capped. Strategists said future dollar moves were likely to be driven by news on the U.S. fiscal issue and increasingly by U.S. data after the Fed’s decision, also announced on Wednesday, to explicitly link its policy path to unemployment and inflation.

U.S. data on Thursday on weekly initial jobless claims, retail sales and inflation did little to affect trading but comments by U.S. House of Representatives Speaker John Boehner charging that the White House was willing to “slow-walk our economy right up to - and over - the fiscal cliff” did keep the dollar pressured..

“Consumers have recovered somewhat after October’s drop in sales but the trend has been declining since last June,” Joseph Trevisani, chief market strategist at Worldwide Markets, Woodcliff Lake in New Jersey, said of the retail sales data. “When the results are adjusted for inflation, these are not numbers that will bring the Fed’s employment goals any closer.”

The euro was last up 0.1 percent at $1.3082, having hit a session low of $1.3039 and a session high of $1.3100. Some $4.58 billion in euros changed hands with a few hours left in the New York session, according to Reuters Dealing, compared with $6.076 billion in the entire global session a week ago.

With the Fed actively targeting economic data, the dollar could see a boost if data shows any sign of improvement, analysts said. But they also cautioned that the euro could remain supported in the near term with positive developments in the euro zone and successful bond auctions in Italy.

The European Union reached a landmark deal on Thursday to make the European Central Bank the bloc’s top banking supervisor, a move that was seen as a step closer to resolving the debt crisis.

YEN FALTERS

Against the yen, the dollar was at 83.56 yen, up 0.4 percent on the day, having hit a near nine-month high of 83.67.

The dollar was expected to rise further against the Japanese currency on expectations the Bank of Japan will ease monetary policy further.

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.

Earlier on Thursday the Swiss franc rose against the euro after the Swiss National Bank left its cap at 1.20 francs per euro but reiterated it was prepared to buy foreign currency in unlimited amounts to maintain it.

The euro was last down 0.2 percent at 1.2083 francs.

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