Categorized | Forex

FOREX-Dollar slides broadly after fresh easing from Fed

FOREX-Dollar slides broadly after fresh easing from Fed

* Dollar falls across the board after Fed announces QE

* Euro seen extending rally through resistance at $1.3055

* Yen expected to strengthen further vs dollar

By Nia Williams

LONDON, Sept 14 (Reuters) – The dollar hit a four-month low against the euro and Swiss franc on Friday, coming under broad pressure after the U.S. Federal Reserve announced a new round of aggressive monetary stimulus to support economic growth.

Commodity currencies including the Australian dollar and sterling also rallied against the greenback, pushing the dollar index to a four-month low of 78.949.

Some market players said Fed easing, announced on Thursday, combined with a European Central Bank plan announced last week to lower peripheral euro zone borrowing costs meant the euro could extend its rally towards $1.35.

“It’s a very powerful combination of the Fed coming together with improved sentiment towards the euro zone. The top trades are short dollar against the commodity bunch, and long euro against the yen, dollar and Swiss franc,” said Steven Saywell, head of FX strategy at BNP Paribas, referring to bets the dollar will fall and the euro rise.

The euro hit a peak of $1.3054 on reported buying by Eastern European investors before running into resistance from the 55-week moving average at $1.3055.

The dollar fell to 0.93131 Swiss francs, its lowest since mid-May. The growth-correlated Australian dollar hit a one-month high of US$1.0589.

Some strategists said the euro’s rally could run out of steam after a few days of gains, given recent poor U.S. economic data meant monetary was already priced into the euro/dollar exchange rate.

“We came a long way before the meeting so the surprise element was not really there,” said UBS currency strategist Chris Walker, adding the single currency may start to retreat around $1.32.

The euro has climbed 3.5 percent against the dollar since the start of September, helped by the ECB’s bond-buying scheme, and 8 percent from a two-year low of $1.2042 hit in late July.

The dollar’s fall could reduce other countries’ competitiveness, making markets wary authorities might seek to counter this.

While the ECB plans appeared to have reduced the risk of another flare-up in peripheral bond yields, a sustained rise in the euro could hurt the euro zone’s economy and exports.

“With backstops in place, the chances of scenarios such as a break-up of the euro or a Greek exit seem to have declined to some extent,” said Akira Hoshino, chief manager at Bank of Tokyo-Mitsubishi UFJ’s foreign exchange trading department.

“But at the same time, persistent euro strength is something that would be negative for Europe.”

YEN HEADACHE FOR JAPAN

The Fed said it would buy $40 billion of mortgage-backed debt per month until the outlook for jobs improved substantially. It also expects interest rates to stay near zero until at least mid-2015.

The Fed announcement was likely to cause problems for Japan by lifting the yen to levels that threaten exports.

The dollar edged up 0.2 percent to 77.66 yen, but remained near a seven-month low of 77.13 yen hit on Thursday.

The drop in the dollar has the market jittery about the potential for yen-selling intervention, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Adding to the anxiety, traders in Asia said the Bank of Japan, which conducts currency intervention on behalf of Japan’s finance ministry, conducted a rate check on Thursday after the Fed’s decision. Such rate checks are regarded by traders as a sign Japanese authorities may be moving closer to intervening.

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