* Dollar up on short-covering as Fed decision looms
* Market deeply divided on whether Fed will ease
* BOJ stands pat on monetary policy as expected
By Hideyuki Sano
TOKYO, Aug 10 (Reuters) - The dollar staged a rebound
against major currencies on Tuesday as traders pared short
positions on looming uncertainty over whether the U.S. Federal
Reserve will start a new phase of quantitative easing to deal
with a slowing economy.
Much uncertainty surrounds the Federal Reserve's policy
meeting on Tuesday with the market deeply divided over what the
Fed might do, beyond a rough agreement that it will sound more
cautious on the recovery.
"I have a feeling that the market has got carried away with
the idea of the Fed easing. It seems as if most traders are
expecting the Fed to say it will reinvest maturing bonds at
least," said a trader at a Japanese bank.
A Ried Thunberg/ICAP poll of money managers found that 52
percent thought the Fed would take no new action on policy,
while 48 percent believed it would at least hint at new steps.
Such steps may include anything from a promise to consider
more quantitative easing; to reinvesting money from maturing
debt into Treasuries or MBS; to cutting interest paid on excess
reserves; to buying financial assets outright. []
"If the Fed does take action today and U.S. interest rates
fall, that is likely to lead to dollar-selling," said Hiroshi
Maeba, manager of forex at Nomura Securities.
The crucial policy announcement from the Fed is expected
around 1815 GMT.
Given the uncertainty, speculators trimmed their short
dollar positions. The euro fell 0.5 percent from late U.S.
trading on Monday to $1.3148 <EUR=>, pulling away from a
three-month peak of $1.3334 hit on Friday on trading platform
EBS.
The euro's decline gained steam after it fell below
trendline support on hourly charts near $1.3200, with stop-loss
orders also adding to the euro's drop.
The pullback came despite upbeat euro zone data, with
investor morale surging [] and German exports up
strongly. []
The yen was the exception to the dollar's broad rebound on
Tuesday and edged up slightly against the greenback. Traders
cited talk of fund repatriation by Japanese investors related to
coupon payments of U.S. Treasuries due in mid-August.
The Bank of Japan kept interest rates steady at 0.1 percent
and held off on new policy steps, in a decision that was in line
with market expectations. []
The dollar slipped 0.1 percent to 85.83 yen <JPY=>, still
some distance from last Friday's eight-month low of 85.02 yen.
Market players said there are substantial stop-loss orders
just under options barriers at 85 yen, with more stops sitting
below 84.82 yen. A fall below 84.82 yen would take the dollar to
a 15-year low against the yen.
Traders think the yen will eventually test these levels as
Japan is seen unlikely to intervene to curb the yen unless
dollar/yen falls to around 80 yen. []
Japanese Finance Minister Yoshihiko Noda declined to comment
on intervention. He also said the recent market moves are
somewhat onesided, but that produced no market response.
[]
Sterling <GBP=D4> fell 0.6 percent to $1.5809 after data
showed British house prices fell in the three months to July for
the first time in a year and that retail sales growth slowed
sharply in July. [] []
(Additional reporting by Wayne Cole in Sydney, Masayuki Kitano
in Tokyo and Reuters FX analyst Krishna Kumar in Sydney; Editing
by Joseph Radford)
