London: The dollar dropped close to a record low against the yen on Wednesday ahead of the US Federal Reserve policy decision and looked unlikely to pare those losses as investors waited to see what measures might be taken to revive the flagging US economy.
The yen’s broad rise triggered concerns about fresh intervention from the Japanese authorities and kept many investors away from pushing it much higher.
The dollar was last down 0.1% on the day at 76.28 yen , having fallen as low as 76.11 yen on trading platform EBS, not far from its record trough of 75.94 yen hit in August. Traders said strong selling by exporters triggered stop losses near 76.35 and 76.20 yen.
There was talk of large dollar bids between 76.20 yen to 76.00 yen, while downside stop-loss orders were cited at 75.90 yen, just under the dollar’s record low.
Analysts said the greenback was unlikely to regain much ground before the end of the two-day Fed meeting later on Wednesday. Nonetheless, investors were preferring to keep positions square rather than risk being wrong-footed by the Fed.
Policymakers are widely expected to announce “Operation Twist”, designed to boost the economy by buying longer dated Treasuries and selling shorter ones to keep rates at the long end lower.
Although such an operation would be less damaging for the greenback than another round of quantitative easing - which floods the system with more dollars and expands the Fed’s balance sheet - analysts said both measures suggested the Fed was running out of options to kickstart the economy.
“The risk of QE is a burden to the dollar, while Operation Twist might not be that much of a burden because there will not be an enlargement of the balance sheet,” said Lutz Karpowitz, FX strategist at Commerzbank.
“But I can hardly see this having a positive impact on the dollar either. Rates are already at historic lows, that’s not the reason the U.S. economy isn’t performing. The market might get the impression all these measures do not make much sense.”
SWISS FRANC FALLS
The euro and the dollar both surged against the Swiss franc, with traders saying the rise in euro/Swiss gained steam on stop-loss buying and as traders took aim at option barriers that had been lurking between 1.2250 and 1.2300 francs.
Persistent market talk the Swiss National Bank is looking to lift its euro/Swiss intervention target to 1.25 francs from 1.20 helped fuel the drop in the franc. The SNB has declined to comment on the rumours.
The euro rose 0.45% against the Swiss franc to 1.2210 francs , having risen more than 1% at one point to a 2-1/2 month high of 1.2320 francs. It faces resistance at its 200-day moving average near 1.2361.
Against the dollar, the euro slipped 0.2% to $1.3677 as European shares opened lower but held nearly a cent above the previous day’s low of $1.3593.
“We are in an environment where euro/dollar is driven by European equity market direction,” said Audrey Childe-Freeman, EMEA head of FX strategy at JP Morgan Private Bank.
Position squaring and Greece’s pledge to bring forward painful austerity steps gave the single currency limited support but investors remained concerned that Greece may default on its debts.
Childe-Freeman said the euro’s reaction to any announcement of Operation Twist would likely be limited as much of that expectation is already priced in by the market.
The commodity currencies were largely flat on the day, with the Australian dollar trading at US$1.0263 and the New Zealand dollar at US$0.8224.