FOREX-Dollar shines after Fed signals stimulus withdrawal

FOREX-Dollar shines after Fed signals stimulus withdrawal
Business & Markets 2013
Written by Reuters
Thursday, 20 June 2013 20:01

* Fed says likely to end bond-buying by mid-2014
* Traders reestablish bets on dollar gains
* Euro falters as data shows recovery still some way off
* Australian dollar slides to 33-month low versus dollar

LONDON (June 20): The dollar rose broadly on Thursday and was poised for further gains after the Federal Reserve signalled it would begin withdrawing stimulus this year as the U.S. economy improves.

Chairman Ben Bernanke said the Fed was likely to end its bond-buying programme by the middle of 2014, prompting traders to re-establish bets on a higher dollar.

Analysts also said the dollar's resurgence could put an end to the recent resilience of the euro, potentially pushing it below $1.30 as markets become wary about the prospect of lower European Central Bank interest rates.

"Now it feels like the market wants to add to dollar longs ... The U.S. growth story is still the most convincing in G4 (the United States, euro zone, Japan and Britain)," said Valentin Marinov, currency strategist at Citi.

"$1.30 could be on the cards for euro/dollar heading into the ECB meeting on July 4."

The euro was down 0.7 percent at $1.3201, with sentiment hurt by surveys showing the euro zone private sector has yet to make a steady recovery.

A break below the June 10 low of $1.3177 could leave the euro poised to drop towards chart support at the 100-day moving average at $1.3095 and the 200-day average at $1.3072.

Analysts at Westpac said they added a short euro position to their portfolio and would add more on any rebound to $1.3350.

The dollar index, which measures dollar performance against a basket of currencies, rose 0.7 percent to a 10-day peak of 82.053, after Bernanke's comments drove U.S. 10-year bond yields to their highest in well over a year.

The dollar was up 1.4 percent at 97.80 yen, having hit 98.29 yen — its strongest in more than a week. Some analysts forecast a rise back above 100 yen due to the contrast between the U.S. monetary policy outlook and aggressive easing in Japan.

The dollar broke away from the pattern over recent weeks in which it often fell against the yen in tandem with share prices. European shares were last down more than 2 percent.

"I don't think it is going to be a straight line higher (for dollar/yen), but we are going to move up, perhaps two steps forward, one step back," said Jane Foley, senior currency strategist at Rabobank.

The Australian dollar was among the worst performers against the U.S. dollar, hitting a 33-month low as it tracked steep falls in riskier and emerging currencies. It hit a low of $0.9164, also hurt by data showing China's manufacturing sector weakened in June to a nine-month low.

Morgan Stanley analysts said the Australian dollar was the most vulnerable major currency and that they would look to sell rebounds to $0.9330, targeting a deeper decline towards $0.8500.