RTRS: Dollar, yen dip as market attention turns to Fed
The dollar and yen fell on Wednesday as optimism about stimulus spending lifted stock markets and investors awaited the end of a Federal Reserve meeting for signs of new efforts to jump-start bank lending.
Sterling continued its rebound from last week's 23-year low against the dollar, boosted by a rally in UK bank shares, while the euro gained as French and German consumer confidence data exceeded economists' dire forecasts.
Hopes for the creation of a U.S. "bad bank" to mop up toxic assets and Tuesday's U.S. Senate panel move to widen a proposed stimulus package to about $887 billion also boosted confidence, blunting the appeal of the safe-haven dollar and yen.
Investors focus is turning to the Fed, which ends its policy meeting later on Wednesday. With interest rates already targeted near zero, markets will be on alert for word of new policies, such as buying long-dated U.S. government bonds.
"My sense is that the U.S. administration is not of the opinion that the Fed is out of ammo," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut.
That means that if officials announce new, unconventional policies, he said "it is crucial that the Fed gets in front of the public and explains itself -- something a few sentences in a statement can't possibly address."
Early in New York, the euro was up 0.7 percent at $1.3266 and 1.3 percent at 118.61 yen. Sterling rose 1.2 percent to $1.4315, while the dollar added 0.5 percent to 89.37 yen.
Traders said a cluster of dollar-yen options were set to expire later on Wednesday in the 89.40-89.50 area, which could affect the exchange rate.
Any move by the Fed to buy Treasury debt would cut the government's borrowing costs, making it easier to stabilize the struggling economy. Gilmore said that would likely boost risk appetite further and weigh on the dollar and yen.
Chris Turner, head of FX research at ING in London, said markets were also expecting more from U.S. Treasury Secretary Timothy Geithner on the proposed stimulus package and talk of a U.S. "bad bank" for toxic assets.
Still, analysts were quick to point out that the global economic outlook remained gloomy despite the short-term recovery in risk taking.
"Global growth and demand are still the key and confidence is shot," IDEAGlobal strategist Maurice Pomery said in a note to client. "The bigger themes remain and I still believe the dollar will do well and yen strength with continue."
The Swiss franc fell to its lowest level this year against the euro after a key Swiss economic indicator came in at the lowest level since the series began in 1991.
The Australian dollar rose 1.2 percent to $0.6701 as global equity gains outweighed data showing the biggest decline in consumer prices in a decade.
The International Monetary Fund chief Dominique Strauss-Kahn underlined the scale of the crisis, saying the fund risked running out of money if it had to meet all potential claims on its resources.
