FOREX-Dollar up broadly after GDP; Fed easing still seen

Published 10/29/2010, 09:39 AM
Updated 10/29/2010, 09:44 AM

* Focus remains FOMC and likely QE

* Yen within sight of record high of 79.75 per dollar

* Yen outperforms vs higher yielders (Recasts with reaction to U.S. data, updates prices, adds quotes)

NEW YORK, Oct 29 (Reuters) - The dollar rose broadly on Friday after U.S. economic data did nothing to reduce expectations that the Federal Reserve will commit to a new round of monetary stimulus next week.

Gross domestic product expanded at a 2.0 percent annual rate as expected in the third quarter, the Commerce Department said.

The Fed has telegraphed its intent to boost growth by pumping more money into the economy through direct government bond purchases several times. The only uncertainty is how much money the Fed is willing to spend.

A survey by the New York Federal Reserve of dealers and investors included scenarios of up to $1 trillion, a figure larger than recent estimates.

Analysts say possible scenarios include the Fed starting at $80 billion to $100 billion a month but leaving itself the option to do more.

"One component of the report that probably caught the market's attention is the softer-than-expected core PCE number," said Vassili Serebriakov at Wells Fargo in New York of the U.S. economic data.

"With growth steady but unimpressive and inflation pressures very benign, it underscores the Fed's most recent message and their concern with the inflationary readings," said Serebriakov. "I do think it confirms and perhaps reinforces expectations for the Fed's quantitative easing move next week."

The yen also rose broadly on Friday, coming within sight of its 1995 record high versus the dollar.

In early New York trade, the dollar was down 0.4 percent at 80.65 yen, off an earlier low of 80.53 on trading platform EBS. Stop-loss orders were reported under 80.40 ahead of a layer of bids from 80.30 to 80.00.

Friday's selling pushed the dollar toward a 15-year low of 80.41 yen and near a record trough of 79.75 also set in 1995.

The yen's strength against the dollar is likely to revive jitters that the Japanese authorities could intervene again soon to stem the currency's appreciation.

The 80 level "seems to be the new line in the sand," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.

But if the Fed engages in aggressive quantitative easing, it is likely to push the dollar/yen to 75 yen, Salvaggio said. If the Fed is less aggressive than expectations, the dollar could jump to 85 to 87 yen and the euro could go to the low $1.30's, he said.

The euro fell as much as 1 percent to 111.52 yen, while the Australian dollar last traded 0.5 percent lower at 78.74 yen. The Australian dollar slid 0.2 percent to $0.9765.

The euro slipped 0.2 percent to $1.3905, leaving the dollar index little changed at 77.301. (Reporting by Nick Olivari; Additional reporting by Wanfeng Zhou; Editing by Leslie Adler)

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