Wednesday August 12, 2009 - 22:14:10 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar up vs yen as Fed says it will slow purchases
* Dollar rises vs yen, pares losses vs euro
* Fed to extend bond buying, says economy is leveling out
* Stocks rise, Treasury prices drop after Fed
(Adds comments, details. Updates prices)
By Vivianne Rodrigues
NEW YORK, Aug 12 (Reuters) - The dollar gained versus the
yen and pared losses against the euro on Wednesday after the
Federal Reserve said economic activity is "leveling out,"
suggesting the economy is through the worst of the recession.
The Fed also said it would extend by one month through
October the duration of a program to buy long-term government
securities but would not increase the amount of purchases.
Analysts viewed this as a sign the central bank thought the
economy was improving but said its move to extend the
time-frame of asset purchases signaled the economy remains
"The dollar was boosted ... as people are focusing on the
somewhat more hopeful outlook," said David Watt, a senior
currency strategist at RBC Capital Markets in Toronto.
"But the Fed won't be moving the punch bowl away soon," he
added. "That reflects some caution, but it's hopeful that they
didn't expand the program. They sort of split the difference --
they won't expand the program but recognize that the economy
still has vulnerabilities."
Adding to that view, the Fed also held interest rates near
zero as expected and said they would likely stay there for an
extended period. For related news click [ID:nN12462568].
The dollar was 0.2 percent higher at 96.08 yen JPY= after
swinging between 96.75 and 95.13 yen in the session. The euro
was still up 0.3 percent on the day at $1.4198 EUR=, but
below $1.4231 where it traded before the Fed's announcement.
Bank of New York-Mellon currency strategist Michael
Woolfolk said dollar gains were capped by the Fed's extension
of the asset-purchase deadline.
"The Fed is not yet convinced that the economy is on solid
ground," he said, adding that Fed Chairman Ben Bernanke "knows
very well the risks associated with removing stimulus too
The Fed slashed interest rates to a range of between zero
and 0.25 percent in December and has pumped money rapidly into
the economy to stimulate economic activity in the worst
recession in decades. Part of that includes $300 billion set
aside to buy long-dated U.S. government bonds.
Stocks extended gains and U.S. Treasury prices tumbled as
the Fed statement gave a slightly more upbeat but guarded
assessment of the U.S. economy, saying for the first time that
activity is "leveling out" but was likely to remain weak "for a
"The outcome of this decision is still much more dollar
bullish," said Kathy Lien, a director of currency research at
GFT Forex in New York.
Some analysts said that continues a trading theme that
began late last week when the dollar rose on
better-than-expected U.S. employment data. For most of the
year, the dollar has weakened on good economic news and rallied
when anxious investors needed bought it as a safe haven.
The focus on the Fed overshadowed a U.S. Commerce
Department report that indicated the U.S. trade deficit widened
in June to $27 billion. [ID:nN11326860].
Also on Wednesday, Norway's central bank held its main
interest rate unchanged at a record low of 1.25 percent
NOCCNOCD, in line with analyst forecasts as the Norwegian
economy has shown signs of stabilization. [ID:nOSL010944]
The dollar was 2 percent lower against the Norwegian crown
NOK=, while the euro fell 1.9 percent against the Norwegian
(Additional reporting by Wanfeng Zhou and Steven C. Johnson;
Editing by Kenneth Barry)
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