USD Maintaining its Stability

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  • 03 November, 2010 GMT

By: Hillel Fuld

The USD maintained its level on Wednesday as the Fed looked ready to add more monetary easing to spur a flagging recovery, a move analysts predict would weigh on U.S. yields and ultimately put more pressure on the American currency.

Traders stated that the market was unwilling to make new bets prior to the U.S. central bank's policy shift due at around 1815 GMT, with option expiries expected to dictate future price action.

Markets are generally priced for the Fed initially to commit to buying at least $500 billion in Treasuries over a five month period, although much dismay surrounds the size and pace of bond purchases.

"There is uncertainty over the details of the Fed announcement but ultimately QE leads to lower yields and should mean the dollar goes down in the long-term," said Adrian Schmidt, currency strategist at Lloyds Banking Group.

The USD was flat versus a currency basket .DXY at 76.714. The eurowas also steady around $1.4030, with traders highlighting option expiries at $1.3990, $1.4000 and $1.4050 which they said were likely to influence price action on the day.

Versus the yen, the dollar stabilized at 80.62 yen, unchanged on the day, as a Japanese holiday led to relaxed trading, but the outlook was still skewed to the downside.

"Irrespective of recent ratcheting down of Fed QE2 expectations from $1 trillion to $500 billion, a likely open-ended approach (of say $100 billion per month) should in our view keep (the dollar) on a depreciation path," said Tom Levinson, currency strategist at ING in a note to clients.

"An absence of BOJ asset purchases of a similar scale together with USD/JPY's strong correlation with U.S. Treasury yields will keep the former biased lower."

USDJPY hovered close to this week's 15-year low of 80.21, with all-time lows at 79.75 also close by, as the market stayed sensitive to potential for Japanese monetary intervention to stem the yen's rise.


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