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FOREX-Dollar jumps as Fed defers stimulus; ECB action eyed
August 1, 2012 / 8:50 PM / in 5 years

FOREX-Dollar jumps as Fed defers stimulus; ECB action eyed

* Dollar gains on Federal Reserve wait-and-see mode
    * Focus shifts to whether ECB acts after Draghi's pledge


    By Julie Haviv
    NEW YORK, Aug 1 (Reuters) - The U.S. dollar rallied against
the euro and yen on Wednesday after the Federal Reserve held off
on offering new monetary stimulus, a move that may contrast with
action expected from an upcoming European Central Bank meeting.
    While Fed policymakers reiterated their disappointment with
the slow pace of progress in bringing down the country's 8.2
percent jobless rate, the U.S. central bank dashed expectations
among some investors by taking no new measures, which buoyed the
dollar. 
    While the Fed signaled further bond buying could be in store
to help support a U.S. economic recovery, it held off on
announcing a third round of so-called quantitative easing, which
would have been negative for the dollar.
    That is because quantitative easing is tantamount to
printing money and dilutes the value of the dollar.
    "The statement clearly had a dovish bias, with the Fed
saying that the U.S. economy is decelerating and it seemed like
there is some stimulus action in the works. But overall it was
less dovish than the market had hoped," said Richard
Franulovich, senior currency strategist at Westpac in New York.
    "Again, there were very few details on further Fed action.
So I think that's why the dollar rallied," he added.
     
 
    
    The euro was last down 0.6 percent at $1.2224,
remaining below a three-week peak of $1.2390 struck last week
after comments from ECB President Mario Draghi.
    Draghi boosted the European currency last week by pledging
to do everything necessary to preserve the euro, raising
expectations the ECB might resume its bond purchase program,
lowering borrowing costs for Spain and Italy.
    But many analysts and traders say the impact of any ECB
action would be temporary in any case without a sustainable
economic recovery in battered southern Europe.
    Much of the euro zone is in a recession and record-high
joblessness across the region is likely to keep alive chances of
more interest rate cuts by the ECB in the near term, keeping
sentiment toward the euro bearish.
    Economic data painted a gloomy picture for the euro zone,
with business surveys on Wednesday showing the bloc's
manufacturing sector contracted for an 11th successive month.
 
    The Fed statement also buoyed the dollar against the
Japanese yen. It last traded up 0.4 percent at 78.42 yen,
according to Reuters data.

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