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FOREX-Dollar edges up, supported ahead of FOMC

Published 12/16/2009, 04:09 AM
Updated 12/16/2009, 05:30 AM

* Dollar edges up, euro near 2-1/2-mth low before FOMC

* Focus on whether Fed statement will suggest QE wind down

* Aussie falls on GDP, Swedish crown pares gains after Riks

(Adds comment, details, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Dec 16 (Reuters) - The dollar edged up against the euro on Wednesday, nearing a 2-1/2-month high as investors awaited a Federal Reserve policy statement for clues on when it may begin winding down its loose monetary policy.

The euro failed to capitalise on an improvement in the German manufacturing and services sectors, while the Australian dollar took a hit after weak economic growth data prompted speculation the Reserve Bank of Australia may pause its interest rate-raising cycle.

Many in the market expect the U.S. central bank in its post-meeting statement will hold fast to its pledge to keep interest rates at essentially zero for an "extended period", suggesting a rate rise will not happen until later in 2010.

Still, a run of strong U.S. economic data in recent weeks has raised optimism that the economy is crawling out of recession, prompting some anticipation the Fed may end fiscal stimulus measures soon.

This would be seen as the first step towards raising rates, which is seen as a positive for the dollar after the U.S. currency has suffered for most of the year on the view that other central banks will begin to raise rates before the Fed.

"The dollar has been moving higher on some expectations that the Fed might change its statement to suggest more rate rises over the next 12 months," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.

He added there was a risk is that the Fed will stick to its usual statement, which may push the dollar lower.

By 0855 GMT, the euro was little changed at $1.4535, after sliding as low as around $1.4510 in early European trade. A fall under $1.4503 would be the single currency's weakest since early October.

Traders cited talk of options barriers around $1.4500, with the risk that players still long on the euro after its recent slide would want to unwind those positions before the year-end.

The euro offered limited initial reaction to a preliminary reading of the German purchasing managers' index, which showed both manufacturing and services PMI rising more than expected to 53.1 in December, from 51.4 and 52.4, respectively, last month.

French manufacturing PMI was unchanged in December from the previous month, while services PMI fell more than expected.

The euro has been stung by concerns about the health of euro zone banks, which were underlined this week after Austria said it would nationalise of one of its major banks, and the weak fiscal status of some euro zone members including Greece, which had its credit rating cut last week.

AUSSIE SUFFERS

The Swedish crown traded at 10.427 per euro, retreating from the day's high around 10.405 after Sweden's central bank held rates at 0.25 percent on Wednesday, and kept its rate path unchanged, as expected.

The dollar index was flat at 76.951, not far from a 2 1/2-month high of 77.092 hit the previous day. Against the yen, it was also unchanged at 89.65 yen, pulling away from the day's low around 89.40 yen.

The Australian dollar fell 1.1 percent on the day to as low as $0.8956 after data showed Australia's GDP grew by just 0.2 percent in the third quarter, less than forecast.

Also hurting the Australian currency were surprisingly dovish remarks by the central bank which prompted investors to rein in expectations for tightening next year. (Editing by Victoria Main)

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