Dollar gains as short positions cut before Fed
Thursday, 28 October 2010
LONDON, Oct 27 (Reuters): The dollar rose broadly Wednesday as speculation the US Federal Reserve would take a gradualist approach to more quantitative easing next week prompted players to liquidate some short dollar positions.
The dollar was pushed up to a two-week high against the yen and a one-week peak versus the euro, which was also impacted by euro zone banks taking up more cheap funding than expected at a three-month ECB tender. The greenback also rose against the Swiss franc and Australian dollar.
The Wall Street Journal said the Fed would make bond purchases worth a few hundred billion dollars over several months, which compared with investors' base-case scenario for an initial commitment to buy at least $500 billion.
In a Reuters survey earlier this month, U.S. primary dealers' projections for the size of the Fed's expected quantitative easing at its next policy meeting on November 2-3 had ranged from $500 billion to $1.5 trillion. "Expectations have been pared that the Fed ... would be more aggressive," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, adding the euro could drop back to around $1.35 in the next month or two.
By 0935 GMT, the euro fell 0.3 per cent to $1.3819 EUR=, after falling to a $1.3772 as a break though an option barrier at $1.3800 accelerated selling.
The single currency was also hurt as results of the European Central Bank's first indexed three-month refinancing operation showed a larger-than-expected take-up of 42 billion euros from European banks for cheap funding.
But some said the dollar's rebound may be limited.
"There is not great downside potential (for the euro) as the Fed is adopting a looser monetary policy while the direction of the European Central Bank seems to be the opposite," said Roberto Mialich, currency strategist at Unicredit in Milan.
Traders said there were likely to be bids for the euro at around $1.3750/60. One major support may be at around $1.3787, a 76.4 per cent retracement of its latest rebound from the low around $1.37 to Monday's high.
The dollar was pushed up to a two-week high against the yen and a one-week peak versus the euro, which was also impacted by euro zone banks taking up more cheap funding than expected at a three-month ECB tender. The greenback also rose against the Swiss franc and Australian dollar.
The Wall Street Journal said the Fed would make bond purchases worth a few hundred billion dollars over several months, which compared with investors' base-case scenario for an initial commitment to buy at least $500 billion.
In a Reuters survey earlier this month, U.S. primary dealers' projections for the size of the Fed's expected quantitative easing at its next policy meeting on November 2-3 had ranged from $500 billion to $1.5 trillion. "Expectations have been pared that the Fed ... would be more aggressive," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, adding the euro could drop back to around $1.35 in the next month or two.
By 0935 GMT, the euro fell 0.3 per cent to $1.3819 EUR=, after falling to a $1.3772 as a break though an option barrier at $1.3800 accelerated selling.
The single currency was also hurt as results of the European Central Bank's first indexed three-month refinancing operation showed a larger-than-expected take-up of 42 billion euros from European banks for cheap funding.
But some said the dollar's rebound may be limited.
"There is not great downside potential (for the euro) as the Fed is adopting a looser monetary policy while the direction of the European Central Bank seems to be the opposite," said Roberto Mialich, currency strategist at Unicredit in Milan.
Traders said there were likely to be bids for the euro at around $1.3750/60. One major support may be at around $1.3787, a 76.4 per cent retracement of its latest rebound from the low around $1.37 to Monday's high.