Categorized | Forex

FOREX-Dollar struggles after Fed action, yen choppy

FOREX-Dollar struggles after Fed action, yen choppy

* Dollar hurt as Fed announces more QE

* Euro seen extending rally to $1.35-1.36

* Yen falls on anxiety about intervention

By Anirban Nag

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

But the yen fell broadly on speculation that Japanese authorities could intervene to cap its recent gains against the dollar. Expectations that the Bank of Japan could ease policy next week in response to the Fed’s action are likely to undermine the yen, some traders said.

Commodity currencies including the Australian and Canadian dollars also rallied against the greenback, pushing the dollar index to 78.729, its lowest in more than four months.

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

“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 $1.31218 on trading platform EBS, up 1 percent on the day, as a drop in peripheral bond yields prompted investors to buy the currency. The euro also rose to a eight-month high of 1.2178 Swiss francs and a four-month high against the yen of 102.24 yen.

The dollar fell to 0.9299 Swiss francs, its lowest since mid-May. The growth-correlated Australian dollar hit a one-month high of US$1.0605 as riskier assets rallied.

Some strategists and fund managers said the euro’s rally could soon run out of steam, given recent poor U.S. economic data meant monetary easing by the Fed was already priced into the euro/dollar exchange rate.

“A lot of the good news has been priced in by the euro,” said Jaco Rouw, a fund manager at ING Investment Management. “The balance of risk is for a negative surprise, say either from Greece or Spain, and we would look to sell the euro into any rise towards $1.35-$1.36.”

The euro has gained 4 percent against the dollar since the start of September, helped by the ECB’s bond-buying scheme and the German Constitutional Court backing the euro zone’s bailout fund. It is up more than 8 percent from a two-year low of $1.2042 hit in late July.

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 pledge of stimulus, by depressing the dollar, would reduce other countries’ export competitiveness, making markets wary authorities might seek to counter this.

The Bank of Japan meets next week to decide on policy and the Ministry of Finance (MoF) has increased its threats to intervene in the currency market in the past few days.

“Of all the central banks that feel they will be drawn into a currency war by the Fed’s action, the BoJ/MoF may feel the pressure most acutely,” Jane Foley, senior currency strategist at Rabobank said in a note.

The dollar rose nearly 1 percent to a session high of 78.243 yen before paring gains to trade at 78.02. The U.S. currency had hit a seven-month low of 77.13 yen on Thursday.

Traders in Asia said the BOJ, which conducts currency intervention on behalf of the finance ministry, checked rates on Thursday after the Fed’s decision. Such checks are seen as a sign authorities may be edging closer to intervening.

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