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FOREX-Dollar steadies after Fed, euro little changed

Published 06/25/2009, 04:23 AM
Updated 06/25/2009, 04:32 AM

* Dollar steadies after Fed says will continue QE

* Euro retreats from 2-week high after ECB tender

* Euro zone industrial orders due at 0900 GMT

(Releads, adds comment, details, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, June 25 (Reuters) - The dollar was little changed on Thursday, supported after the Federal Reserve said it would maintain its programme of buying government and mortgage debt while adding it saw signs the effects of the recession were easing.

The Swiss franc edged up against the euro and the dollar, reversing some losses after the Swiss National Bank on Wednesday was suspected to have sold the franc to curb its strength. Still, it remained weaker compared with levels at which the central bank was seen to have entered the market.

The euro pulled back from a two-week high hit on Wednesday following solid demand at the European Central Bank's refinancing tender of one-year lending.

Analysts said the dollar would be supported as the Fed's statement after its policy meeting made no mention of plans to step up quantitative easing, which some market participants had considered to be a downside risk to the dollar.

"The fact that the Fed hasn't increased quantitative easing is mildly positive for the dollar," said Paul Robson, strategist at RBS in London.

Market participants awaited a reading of euro zone industrial orders for April due at 0900 GMT. Expectations are for orders to be unchanged from the previous month for a year-on-year decline of 32.3 percent.

By 0756 GMT, the dollar index was up 0.1 percent on the day at 80.610, recovering from a slide in early trade and pulling away from a two-week low hit on Wednesday.

The euro was little changed around $1.3940, off a two-week high of $1.4139 touched on Wednesday in the run-up to the Fed meeting.

The euro traded at 1.5278 Swiss francs, trimming gains after surging nearly 2 percent on Wednesday due to suspected franc selling by the SNB.

Despite the slip on Thursday, the pair remained well above the roughly 1.500 franc level at which the central bank was seen acting in the market.

The dollar was down 0.2 percent at 1.0955 francs but hovered well above a three-week low of 1.0629 francs touched on Wednesday. The SNB was also suspected to be buying dollars against the Swissie the previous day.

Some market participants said that dollar gains would be capped as a rise in U.S. stock futures suggested growing risk demand after the Fed said rates will remain low for a while, stamping out some speculation that they may rise from essentially zero by year-end.

"With the FOMC and ECB repo now out off the way markets are more likely to return their underlying trends, which are positive for risk markets and negative for the dollar," analysts at JPMorgan said in a research note.

The dollar rose 0.7 percent to 96.36 yen as growing risk demand pushed the yen broadly lower, after the Japanese currency had benefitted from risk aversion earlier this year.

Some analysts said that ECB's allotment of 442 billion euros in one-year lending to the market on Wednesday would flood the market with euro liquidity, which would push down short-term rates and dent the euro.

Others added that the fact that the ECB is belatedly catching up with quantitative easing measures implemented by other major central banks may put the euro on the back foot.

(Reporting by Naomi Tajitsu; editing by Andy Bruce)

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