September 22, 2010 / 12:59 AM / 9 years ago

FOREX-Dollar on skids after Fed, market eyes Japan

* Dollar drops to lowest since Japan intervened last week

* Dollar index eyes August low of 80.085

* Euro hits highest in nearly 7 weeks at $1.3312

By Charlotte Cooper

TOKYO, Sept 22 (Reuters) - The dollar fell on Wednesday to its weakest level on the yen since Japan intervened last week after the Federal Reserve signalled it was ready to stimulate the economy more, raising expectations it would print more dollars.

The dollar hit its lowest in seven weeks against the euro and a basket of currencies, and fell below 85.00 yen JPY=, which spurred speculation Japanese authorities may intervene to curb yen gains after they resumed yen-selling for the first time since 2004 last week.

The 85.00 yen level has been regarded as a potential trigger for intervention but authorities were so far not seen in the market on Wednesday.

“There is a risk they will come in,” said Greg Gibbs, currency strategist at Royal Bank of Scotland in Sydney.

“Levels are always a question. They may wait a little.”

The Fed on Wednesday expressed greater concern about sluggish U.S. growth and low levels of inflation in a statement that many took as opening the door wider to pumping new dollars into the economy. [ID:nTRU002490]

“The committee ... is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” it said in the statement.

Gibbs said the shift in Fed language to say that current levels of inflation were not consistent with its mandate meant it had left itself a low hurdle for taking further policy action.

“I doubt the market will step back from selling the U.S. dollar much for the time being until the U.S. data starts to improve,” he said.

The dollar fell as far as 84.78 yen JPY=, still two yen above a 15-year low of 82.87 set last Wednesday just before Japanese authorities intervened to send it three yen higher in a single day. It shed 0.3 percent on the day.

The market has shied off pushing the dollar down aggressively since last week but Japanese Prime Minister Naoto Kan kept intervention jitters alive by telling the Financial Times intervention was “unavoidable” if there was drastic change in the currency. [ID:nLDE68K2AL]

The euro rose as far as $1.3312 EUR=, up 0.4 percent after climbing 1.5 percent on Tuesday.

The dollar index .DXY=USD, a measure of its performance against a basket of six currencies, fell to 80.122, its lowest since early August when it troughed at 80.085. A break there would take it to its weakest levels since April. (Editing by Edwina Gibbs)

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