British pound lifted by 'short squeeze' after jobless claims fall By William L. Watts, MarketWatch LONDON (MarketWatch) -- The U.S. dollar trimmed losses versus most major rivals Wednesday, a day after the U.S. Federal Reserve maintained language indicating it's in no hurry to lift interest rates from near zero. "The U.S. dollar was softer against the major currencies, as those hoping for a change in the Fed's policy language regarding rates staying low were disappointed last night," said strategists at Brown Brothers Harriman. The dollar index (DXY 79.63, -0.12, -0.15%) , which measures the U.S. unit against a trade-weighted basket of six major currencies, slipped to 79.570, down slightly from 79.665 in North American trade late Tuesday. The euro pressed above the $1.38 level versus the dollar in early activity, but trimmed gains to change hands at $1.3787 in recent action, up just slightly from $1.3779 Tuesday. The euro was lifted Tuesday after Standard & Poor's took Greece's sovereign debt off negative watch. "Greece may have pulled clear of an imminent crisis but it still faces many tests ahead, including the rolling over of around 20 billion euros worth of debt this spring," said Jane Foley, research director at Forex.com. The euro was buying $1.3770, compared to $1.3779 late Tuesday. On Tuesday, the dollar fell after the U.S. Federal Reserve reiterated its promise to keep interest rates low for an "extended period," noting high unemployment and inflation remained subdued. Read about the Fed decision. Meanwhile, the British pound jumped to $1.5343 versus the U.S. dollar, up from $1.5259 late Tuesday, gaining ground after the Office for National Statistics said the number of persons claiming unemployment benefits in February posted the largest monthly drop since 1997. Read about U.K. unemployment data. Also, minutes of the Bank of England's March 3-4 policy meeting released Wednesday showed that a debate over upside risks to the bank's inflation outlook intensified somewhat. As expected the summary showed the nine-member panel voted unanimously to maintain its key lending rate at 0.5% and to leave its quantitative-easing program on hold. The data and the minutes helped trigger an apparent "short squeeze" in the pound, strategists said. Data has shown traders have built up massive short positions -- bets the pound will fall. Traders and strategists have grown increasingly bearish on the pound amid worries over Britain's budget deficit and uncertainty surrounding the general election widely expected to take place on May 6. The pound drilled through offers at $1.5320 to $1.5330, triggering buy stops at $1.5340, said Stephen Gallo, head of market research at Schneider Foreign Exchange. There was also talk of hedge-related buying by British exporters, which added to the move, analysts said. The dollar remained higher versus the Japanese currency at 90.45 yen, up from 90.01 yen, rising after the Bank of Japan's rate announcement. The BOJ kept its key interest rate unchanged at 0.1% Wednesday by unanimous vote, as had been widely expected, and also announced plans to double the scale of a lending program introduced in December. See full story on Bank of Japan decision. The bank said it will increase the total amount of three-month loans offered through the special program to about 20 trillion yen ($221 billion) from the current amount of around 10 trillion yen. The decision to expand the loan program wasn't unanimous, with policy board members Tadao Noda and Miyako Suda opposing it in the first split vote since last October. "Today's decision gives the market an impression that the BOJ is somewhat behind the curve in achieving showing its proactive stance to fight against critical problems - deflation, rise in real interest rate and strong yen," said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, in a note to clients.

Source