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FOREX-Dollar edges off post-Fed levels, yen falls

Published 06/24/2009, 11:35 PM
Updated 06/24/2009, 11:48 PM
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* Dollar edges down vs euro but still near post-Fed levels

* Fed: no change on debt buying, deflation less of a threat

* Dollar off peaks vs Swissie made on SNB intervention

* Yen falls vs euro, dollar and Aussie

By Charlotte Cooper

TOKYO, June 25 (Reuters) - The dollar on Thursday edged off stronger levels hit after the Federal Reserve meeting, while the yen fell as the market weighed up whether to resume rallies in riskier assets.

The Fed kept to its debt buyback programme and signalled it was less concerned about deflation, but it also said inflation would remain subdued for some time and interest rates would stay low for an extended period.

The dollar also got a boost on Wednesday after traders reported the Swiss National Bank intervened by selling the Swiss franc for dollars and euros, which sent the dollar up nearly 3 percent against the franc and lifted it across the board.

But the greenback ran out of steam by Thursday, holding steady on the day against a basket of six currencies, although it gained against the yen as the Japanese currency was sold as well against the euro and the Australian dollar.

"The markets have been in risk avoidance mode recently, but that seems to have been reversed in the last 24 hours," said Drew Bradford, head of foreign exchange at Deutsche Bank in Tokyo.

The dollar climbed 0.5 percent to 96.08 yen although it remained well within its recent 93-100 yen range.

Analysts said there was some short-covering on dollar/yen after it failed to break down through a three-week low at 94.88 yen this week.

Talk of Japanese investment fund outflows has also been keeping a floor under yen crosses this week.

Four new Japanese investment trusts launched on Wednesday, all managed by Nomura Asset Management, attracted a combined 119.6 billion yen ($1.25 bln) in funds, according to data compiled by Reuters, and more are expected before the end of the month.

The euro also gained 0.5 percent to 133.93 yen.

The Australian dollar, which has been a popular trade as riskier assets such as shares have rallied in recent months, rose 0.8 percent to 76.78 yen and gained 0.4 percent to $0.7991.

Tokyo's Nikkei share average rose 1.6 percent after falling sharply earlier in the week and as the Fed statement provided no surprises.

The dollar edged 0.2 percent down to 1.0962 Swiss francs after a one-month high at 1.1026 on trading platform EBS on Wednesday.

The euro edged up 0.2 percent to $1.3964, after falling 1 percent against the dollar on Wednesday. But it was still below Wednesday's pre-Fed high of $1.4139, when the market sold dollars on the view that the U.S. central bank would try to dampen higher rate expectations.

Views were mixed as to what the Fed's statement meant for the market in the medium term, with some expecting bets on gains in riskier currencies such as the Australian dollar to dwindle, as the rallies had got ahead of economic recovery. Others said if equity markets picked up again, riskier currencies would follow.

Many had expected Fed policy makers would try to neutralise expectations for higher interest rates which had been building up, to prevent a rise in borrowing rates from choking off recovery, but the statement was less explicit than some expected.

"The Fed basically left things unchanged. Although it eased worries about deflation slightly, it didn't change the timeframe or the size of its debt purchases," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

"What will ultimately happen seems to be the dollar being sold, while interest rates keep rising and stock prices fall after the Fed didn't express concerns about rising interest rates at the meeting." (Additional reporting by Aiko Hayashi and Satomi Noguchi; Editing by Joseph Radford)

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