Greenback falls versus yen; traders wary of Japanese intervention
By William L. Watts, Myra P. Saefong and Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — The dollar lost ground against the euro and other major currencies Tuesday as traders awaited the Federal Reserve’s policy announcement, while the euro found support as investors showed solid demand for Ireland’s debt auction.
The dollar index (DXY 80.97, -0.37, -0.45%) , a measure of the greenback against a basket of six major currencies, fell to 80.976, compared with 81.334 late Monday.
The euro (EURUSD 1.3142, +0.0079, +0.6048%) bought $1.3137, up from $1.3062 in late North American trading on Monday.
Investor attention has centered around whether the Federal Open Market Committee will bow toward another round of so-called quantitative easing -- dubbed “QE-2” in financial markets.
The Fed isn’t expected to take action on interest rates at the end of its one-day meeting assessing the state of the U.S. economy. Its decision and policy statement are due at 2:15 p.m. Eastern. Read about the FOMC meeting.
Concerns that the U.S. central bank could signal it is moving toward a further round of quantitative easing are casting a cloud over the dollar, strategists said. Quantitative easing is considered by many economists as akin to printing money and therefore weakens a country’s currency.
The dollar may get some support “if the FOMC holds off on QE-2 and leaves its rhetoric broadly unchanged, as the market is likely to modestly reduce its expectations of QE-2,” analysts at Barclays Capital said in a research note.
However, the dollar’s “overall downward trend ... will likely remain intact for now,” they said. The foreign-exchange market “is not heavily positioned at the moment and is not likely to back too far away from its expectations for QE-2.”
The euro’s response to the Fed meeting will likely depend on “nuances” in the FOMC statement, said Ulrich Leuchtmann, currency strategist at Commerzbank in Frankfurt.
“We assume that the Fed will try and avoid painting too pessimistic a picture so as not to put pressure on consumer sentiment,” Leuchtmann said.
The dollar stayed down after a report said U.S. housing starts rose 10.5% in August, much more than anticipated but mostly due to a rise in multi-family units. Read about U.S. housing starts.
Meanwhile, sovereign debt sales colored trading in the euro.
The single currency stood near its intra-day high as Ireland’s National Treasury Management Association said it sold 1.5 billion euros ($2 billion) of government debt, the maximum amount on offer. Read about Ireland’s bond sale.
The auction, which received interest for far more debt than was being sold, helped ease worries in credit markets over euro-zone sovereign debt.
