By William L. Watts and Lisa Twaronite, MarketWatch LONDON (MarketWatch) — Central banks called the tune in foreign-exchange markets Tuesday, with the dollar falling versus most major rivals after the Bank of Japan delivered an unexpected rate cut and unveiled a new asset-buying fund. The dollar index (DXY 77.73, -0.72, -0.91%) , a measure of the greenback against a basket of six major currencies, slipped to 78.082 from 78.442 late Monday. Against the Japanese yen, the dollar (USDYEN 83.0300, -0.3700, -0.4437%) traded at ¥83.32, down from ¥83.40 in late North American trading Monday. Shortly after the Bank of Japan’s decision, the dollar jumped but failed to break resistance at ¥84. Read about the Bank of Japan’s policy moves. The trading action “may cause the BOJ to lose heart that even by announcing another round of hefty monetary stimulus can’t push the yen lower,” said Kathleen Brooks, research director at Forex.com. Japanese authorities had intervened in foreign-exchange markets in mid-September to sell yen and buy dollars as they attempted to arrest the Japanese currency’s appreciation. While some form of action was expected, the Bank of Japan’s rate move largely caught markets by surprise. The decision was credited with whetting investors’ appetite for risk, which tends to undercut the U.S. dollar and the Japanese yen as investors seek assets that hold the potential for greater return as well as higher-yielding currencies. “On its own, none of this turns USD/JPY around, since the driver of that trend has been falling U.S. rates, not rising Japanese ones,” said Kit Juckes, head of foreign-exchange research at Societe Generale. “However, the increased commitment to fight deflation is clear and [foreign-exchange] intervention seems very likely as a next step” for the Bank of Japan, Juckes wrote in a note to clients. The euro (EURUSD 1.3843, +0.0167, +1.2211%) , which had ended a streak of gains Monday, rebounded to trade at $1.3765, up from $1.3686. The British pound (GBPUSD 1.5923, +0.0098, +0.6193%) went for $1.5875, up from $1.5828. The euro paid little heed to a warning from Moody’s Investors Service that it had placed Ireland’s Aa2 credit rating on review for possible downgrade, citing three factors: the increasing cost of recapitalizing the nation’s banking sector, uncertain domestic demand and borrowing costs that are on the rise. Read about Moody’s Ireland warning. Analysts noted a downgrade would likely put Moody’s in line with rivals Fitch Ratings and Standard & Poor’s as far as Ireland’s rating goes. Meanwhile, the pound extended a gain on the dollar after the U.K. services purchasing managers index for September showed an unexpected rise. Economists said the improved reading helped dispel fears of a double-dip recession but continued to point toward a substantial slowdown in the pace of growth after the second quarter’s 1.2% expansion in gross domestic product. Read about services PMI. The Bank of Japan’s move followed another Asia-Pacific rate surprise, as the Reserve Bank of Australia unexpectedly left its benchmark interest rate unchanged at 4.5%, citing a moderation in inflationary pressure. Read more on the Australian central bank’s decision. The Australian dollar (AUDUSD 0.9688, +0.0014, +0.1447%) traded at 96.02 U.S. cents, compared with 96.71 cents just prior to the decision. The rate announcement initially knocked the Aussie hard, sending it to an intraday low at 95.38 U.S. cents, according to FactSet Research. Surveys ahead of the decision showed most but not all economists had expected the Reserve Bank of Australia to deliver a rate hike of a quarter of a percentage point. “This delays a hike, rather than making one less likely, but it definitely catches the market the wrong way around (something the RBA probably knew),” Juckes said. “We like the AUD, but will be careful about levels to re-engage.”

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