Dollar rises on Fed view, stocks slip

Thursday, 28 October 2010 05:18 -     - {{hitsCtrl.values.hits}}

HONG KONG, (Reuters) - The U.S. dollar edged up on Wednesday on doubts the Federal Reserve will aggressively buy assets to pump more money into the system, while commodity stocks led Asian stocks lower.

 Most currency dealers expect the Fed to opt for more quantitative easing at a policy meeting next week-- essentially printing money to buy assets and pull market rates lower -- but some believe the weakening dollar already reflects those expectations, and the question of how much easing, and how fast, has kept investors edgy.

 The Wall Street Journal said on Wednesday the Federal Reserve would probably unveil a programme of U.S. Treasury bond purchases worth “a few hundred billion dollars”, but gave no source for the report.

 The euro was down 0.23 percent on the day at $1.3826 after touching $1.3858 overnight, while the dollar was up 0.2 percent at 81.58 yen. The dollar index, a measure of its performance against a basket of currencies, was up 0.07 percent.

 The Fed meets on Nov. 2-3, but some investors have begun to reconsider the likelihood of a big burst of QE after comments from various members of the central bank.

 The U.S. currency rose broadly on Tuesday as investors speculated the Federal Reserve would proceed more cautiously in announcing any asset-buying, scaling back bets against the greenback.

 “I think it’s still possible that QE II is not a done deal for November, even though the market has been trading as if it is,” said Brian Dolan, chief currency strategist at

 New data from Australia showed consumer prices there rose by less than expected in the last quarter while the annual pace of core inflation was the slowest in five years -- greatly lessening the urgency for a hike in interest rates next week.

 The key trimmed mean measure of underlying inflation favoured by analysts rose 0.6 percent in the quarter and 2.5 percent for the year, seemingly justifying the RBA’s decision to skip a rise in its 4.5 percent cash rate this month and give it room to pause ahead of the U.S. Federal Reserve meeting.

 The market now implies around a 29 percent chance of a hike next week -- down from 60 percent earlier in the day -- and just 37 basis points of tightening over the next 12 months compared to 57 basis points before the data.

 The MSCI index of Asia Pacific stocks outside Japan slipped 0.46 percent while the MSCI’s emerging market stock benchmark was down 0.23 percent at 0130.

 The rebounding dollar has caused some investors to bail from commodity stocks, pulling down the MSCI Asia ex-Japan commodity sector index 1.2 percent on the day.

 U.S. stocks ended little changed before the potential market tumult of next week’s U.S. elections and likely announcement of more stimulus from the Fed.

 Next week’s high-profile events could signal shifts in both monetary policy and legislative direction, raising fears that trumped Tuesday’s earnings news and economic reports.

 Overnight, the Dow Jones industrial average gained 0.05 percent, while the Standard & Poor’s 500 Index gained 0.02 point to 1,185.64. The Nasdaq Composite Index gained or 0.26 percent.

 The pan-European FTSEurofirst 300 index of top shares closed down 0.2 percent, after rising 0.3 percent on Monday to end near a six-month high.

 Spot gold edged up 0.4 percent to $1,343.45 an ounce, while U.S. gold futures edged up $5 to $1,343.4 an ounce. Crude oil fell 0.23 percent to $82.32 per barrel.