FOREX-Dollar firms as QE size, intervention risk pondered

Published 10/11/2010, 08:33 PM
Updated 10/11/2010, 08:36 PM

* Dollar edges up vs yen, buoyed by intervention wariness

* Euro steady after pullback from high

* QE size next big question, FOMC minutes awaited

By Charlotte Cooper

TOKYO, Oct 12 (Reuters) - The dollar edged up in early trade on Tuesday after scrambling off recent steep lows against the euro and the yen, as the market tried to gauge the extent of quantitative easing it expects from the Federal Reserve.

Caution about how short dollars the speculative part of the market has become on expectations for more Fed easing and continued wariness that Japanese authorities might intervene to curb yen gains were also helping the greenback.

The Fed's November meeting is now the market's focal point, and minutes from its meet on Sept. 21, when it said it stood ready to provide more support for the economy and expressed concern about low inflation, are due at 1800 GMT.

The market will be watching these for fresh insights into policymaker thinking. Fed vice chair Janet Yellen however cautioned that low interest rates can contribute to financial bubbles even if they are not the primary cause.

UBS analyst Brian Kim said the market had already priced in substantial new Treasury purchases by the Fed, meaning the eventual decision risked disappointing markets.

In a client note, Kim highlighted Yellen's caution, adding this "shows policymakers are very cognisant of the risks with regards to future policies".

The dollar was up 0.2 percent at 82.30 yen after dipping briefly to 81.37 on the EBS trading platform in early Asia on Monday, a 15-year low.

The market is wary that the risk of intervention from Japan grows the nearer the dollar gets to 80 yen and its record low of 79.75 yen set in 1995.

Japanese Economy Minister Banri Kaieda said Japan gained a certain understanding at a weekend G7 meeting with its explanation about its currency intervention.

Japan intervened last month for the first time in six years and Finance Minister Yoshihiko Noda said after the G7 meeting he believed he gained the understanding of his counterparts that the action was aimed at countering excessive currency moves, and Tokyo was not about to conduct a prolonged, massive intervention aimed at driving down the yen to a certain level.

"Given the uncertainty about how far Japanese officials are willing to go in intervention, the market strategy may be to gingerly sell dollar/yen to see if a reaction is prompted," wrote Citi's head of G10 FX strategy Steven Englander.

"It is unlikely that investors will go all-in on dollar/yen shorts, when the threat of intervention is looming, but it is also unlikely that they will take a single intervention of moderate size as a serious threat to dollar/yen's downward trend," Englander wrote.

Data late last week showed currency speculators boosted bets against the dollar to $30 billion, the largest amount since at least mid-2008.

Net long positions on the euro rose to 48,243 contracts, the highest since at least October 2009, while yen longs rose to 49,206 from 28,666.

The euro eased 0.1 percent to $1.3865, well below an eight month high of $1.4030 hit last week.

The dollar rose 0.1 percent against a basket of currencies to 77.551, not far from a nine-month low of 76.906 hit last week. (Editing by Joseph Radford)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.