MW: Dollar falls as Fed mulls symbolic policy shift
Aussie loses ground as Australian central bank holds rates steady
LONDON (MarketWatch) -- The U.S. dollar fell versus major rivals Tuesday, weighed down by a news report that Federal Reserve officials will consider a symbolic policy shift next week amid concerns over the strength of the U.S. economic recovery.
The Wall Street Journal said Fed policy makers will consider whether to use cash received at the maturation of its mortgage-bond holdings to buy new mortgage or Treasury bonds instead of allowing its portfolio to shrink. The decision will likely depend largely on upcoming economic data, including the July jobs report on Friday, the newspaper said.
The dollar index (DXY 80.52, -0.41, -0.51%) , a measure of the greenback against a basket of major currencies, fell to 80.51, from 80.87 in late North American trading Monday.
"Though technically we have argued that the U.S. dollar is oversold, other factors like carry-trade demand and a shift in Fed policy currently have the upper hand," said Kenneth Broux, market economist at Lloyds TSB, in a research note.
The euro (EURUSD 1.3242, +0.0064, +0.4857%) rose to $1.3236, up from $1.3183 late Monday, and the British pound (GBPUSD 1.5952, +0.0064, +0.4028%) changed hands at $1.5940, up from $1.5910 Monday.
U.S. Treasurys, meanwhile, rallied across the curve.
The dollar's decline comes amid a mixed tone in global equities following strong gains on Monday. Read more about action in the stock market.
The dollar fell Monday as equities rallied and risk appetite surged. The dollar has tended to weaken when risk appetite rises and equities gain, and it often strengthens when risk appetite falls.
"The likelihood of a Fed policy shift next week testifies to macro conditions worsening, not firming," Broux said. "We therefore question the scope for additional but isolated U.S. policy stimulus to fuel the rally in risk, but doubt that a reconciliation between stocks and bonds is upon us."
The dollar lost ground against the Japanese yen (USDYEN 85.7500, -0.6700, -0.7749%) , often considered the ultimate safe-haven currency. A dollar bought ¥85.79, down from ¥86.45 Monday.
Japanese Finance Minister Yoshihiko Noda on Tuesday said foreign exchange rates should, in principle, be set by market forces, but added that disorderly movements can hurt economic activity, Dow Jones Newswires reported.
The Australian dollar slipped against its U.S. counterpart on Tuesday, after the Reserve Bank of Australia held interest rates steady.
The RBA kept its benchmark cash rate unchanged at 4.5% as widely expected, citing in-line growth and inflation. See full story on Reserve Bank of Australia policy meeting.
The Aussie dollar initially edged higher against the greenback after the announcement, rising to 91.04 U.S. cents from 90.92 U.S. cents just before the move.
The Australian dollar (AUDUSD 0.9120, -0.0010, -0.1095%) soon slipped and remained down 0.3% versus the U.S. unit at 91.08 U.S. cents.
"The Aussie dollar has come on offer following the RBA as building approvals and retail sales missed their forecasts as well," wrote strategists at UniCredit Bank in Milan. The Aussie/U.S. dollar currency pair may be caught in the 90-91 U.S. cent band even with further U.S. dollar weakness, they said.
