Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

FOREX-Dollar struggles on expectations for Fed action

Published 08/29/2011, 01:31 AM
Updated 08/29/2011, 01:36 AM

* Bernanke leaves door open for further Fed action, no QE3 yet

* Dollar under broad pressure but outperforms Swiss franc

* UBS threat to impose fee on deposits hurting franc

By Ian Chua and Antoni Slodkowski

SYDNEY/TOKYO, Aug 29 (Reuters) - The dollar came under light pressure against a basket of major currencies in Asia on Monday, with traders speculating the Federal Reserve may offer more stimulus next month in the face of an uncertain growth outlook.

While Fed Chairman Ben Bernanke gave no details of further action to boost the U.S. recovery at an eagerly awaited speech on Friday, he said the central bank would extend its September policy meeting to two days to consider its options.

"If the economy were to fall into recession, we believe the Fed would initiate another round of quantitative easing," Michael Carey, chief economist for North America for Credit Agricole, said in a note to clients.

Analysts added, however, that the hurdle is high for introducing more monetary easing due to a rise in core inflation and a split regarding the policy within the Fed.

"Hence the trade-off for the policy, between boosting activity and employment and generating inflation or other distortions in asset markets, has become less attractive," Carey said.

Market expectations for a fresh round of bond buying by the Fed had eased in the leadup to the central bank's annual symposium at Jackson Hole, Wyoming, so the fact that Bernanke did not announce any immediate action was not a major disappointment, traders said.

This leaves the focus squarely on upcoming data including the closely-watched non-farm payrolls reports due on Friday as well as data on U.S. personal spending and manufacturing for clues about the health of the world's largest economy.

The dollar index shed 0.2 percent to 73.702, not far from 4-month lows around 73.421 and off Friday's peak of 74.464.

"The fall in the dollar on Friday was also caused by a rise in euro/Swissie, which pushed euro/dollar higher," said a trader for a Japanese bank, adding that a further rise in the pair could put more pressure on the greenback.

The euro rose 0.2 percent to 1.1735 francs on Monday, nearing resistance at 1.1810, a 76.4 percent retracement of the its drop from an early July peak of 1.2346 francs down to a record low of 1.0075 hit on EBS in early August.

There is more resistance at 1.1894, the next major peak on charts.

Against the yen, the greenback traded at 76.70 yen , recoiling from a recent high around 77.69 but keeping well above the record low plumbed earlier this month at 75.941 yen.

Analysts said Japan's ruling party vote to decide the country's next prime minister was seen as having no impact on the yen.

The euro popped above $1.4500 , building on Friday's 0.8 percent rally, but struggled to decisively break resistance at its Aug. 17 high of $1.4518 and July 27 peak of $1.4537. It last traded at $1.4525.

A customer trader for a major Japanese bank said the euro may rise more in the near term, possibly to as high as $1.4580, its early July peak. The market's view of the euro has not changed in any positive way, and its latest firmness is more a reflection of dollar weakness, investors say.

BROAD PRESSURE

The greenback gained on the Swiss franc which came under broad pressure after Swiss bank UBS threatened on Friday to charge clients a fee on deposits, aiming to discourage them from using some accounts to hoard the safe-haven currency because of financial market volatility.

The dollar was up 0.3 percent at 0.8094 francs, having hit a one-month high around 0.8152 francs on Friday.

Concerns that the global economy would fall back into recession and fears that the euro zone's sovereign debt crisis could spread to the region's banking system have sent currency investors scurrying to the safety of the Swiss franc and yen.

This has prompted both the Swiss and Japanese authorities to act in recent weeks to temper the strength of their respective currencies.

While the Swiss National Bank said it was not involved in UBS's decision to consider imposing a fee, traders said the move posed a fresh hurdle for franc bulls.

The Australian dollar extended last week's gains, having risen against a broadly weaker greenback after Bernanke kept the door open to more policy action to stimulate the U.S. economy. It last traded up 0.4 percent at $1.0627 hovering at a 3-1/2 week peak.

Trading on Monday was subdued with British markets closed for a holiday. (Additional reporting by Masayuki Kitano in Singapore; Editing by Joseph Radford)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.