* Euro jumps, pushing dollar index to 8-1/2 month low
* Traders cite Asian euro buying; U.S. QE worries hit dollar
* Dollar trims earlier gains vs yen triggered by BOJ moves
* Aussie slides after RBA surprises by not raising rates
(Updates prices)
By Jessica Mortimer
LONDON, Oct 5 (Reuters) - The euro jumped against the dollar
on Tuesday on reported Asian buying, pushing the greenback to an
8-1/2 month trade-weighted low, while the yen trimmed earlier
falls against the U.S. currency.
The yen fell after the Bank of Japan cut its key overnight
rate target to 0-0.1 percent from 0.1 percent and said it would
create a pool of funds to buy assets in the face of evidence yen
strength was hurting Japan's economy. []
Analysts said the BOJ's moves were not sufficient to halt
the downward trend in dollar/yen, however, with the U.S.
currency pressured by falling U.S. bond yields and expectations
the Federal Reserve will implement fresh quantitative easing.
The yen's falls stalled just ahead of 84.00 yen per dollar,
and it turned flat on the day in tandem with gains in
euro/dollar, leaving intact expectations more Japanese
intervention will be needed to curb yen gains versus the dollar.
"The yen falls after the BOJ decision looked unlikely to
last. When rates were so close to zero anyway a further rate cut
will make very little difference," said Elsa Lignos, currency
strategist at RBC.
At 1108 GMT, the euro was up 0.7 percent at $1.3765, off a
session high of $1.3794. Resistance was seen at $1.3809, a
6-1/2-month high, and traders cited options barriers at $1.3825.
Traders reported Asian central bank buying of euros against
the dollar, while a U.S. bank was also seen buying, driving it
up sharply from below $1.3700.
Asian central banks have been diversifying their currency
reserves away from the dollar, particularly towards the euro.
RBC's Lignos said the euro bounced above a trend support
line, currently around $1.3650, which runs back to where the
recent rally began in mid-September.
"If some people were thinking of changing their bullish euro
view, this latest move may have changed their mind."
The euro's sharp gains pushed the dollar index as low as
77.975 <.DXY>, its weakest since late January, while the dollar
hit a 2-1/2 year low versus the Swiss franc <CHF=>.
Talk of the United States adopting more QE grew after
Chairman Ben Bernanke said on Monday more Fed asset purchases
could further ease financial conditions. []
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Graphic on trade-weighted FX exchange rates
http://r.reuters.com/qun86p
Reuters Insider show on BOJ reaction:
http://link.reuters.com/tuh86p
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Analysts said the fact the European Central Bank has not
hinted at policy easing measures was seen as positive for the
euro, which shrugged off a Moody's warning it may cut Ireland's
debt ratings. []
AUSSIE SLIDES
Against the yen, the dollar was flat on the day at 83.30 yen
<JPY=>, reversing a climb to a session high of 83.99 yen after
the BOJ decision. Options at 83.30 yen and 80.00 yen due to
expire later helped anchor the dollar in the European session.
The yen fell against other currencies, however, with the
euro <EURJPY=R> up 0.6 percent at 114.75 yen.
"The BOJ's move will cap yen appreciation, but they will
need to come in and intervene if dollar/yen is to go beyond
85/86 -- or would need to see a trough in U.S. rates and yields
which is the main driver of dollar/yen downside," said Societe
Generale currency strategist Kit Juckes.
The dollar hit a 15-year low of 82.87 yen last month,
prompting Japanese authorities to intervene to stem yen gains
for the first time in more than six years.
The higher-yielding Australian dollar fell 0.8 percent to
$0.9600, slipping from a two-year high hit last week after the
central bank unexpectedly left rates on hold at 4.50 percent.
The decision surprised the market, which had priced in a 74
percent chance <CSRBA=CSAU> of a hike, although analysts said
Australia's hefty yield advantage would support the Aussie.
(Graphic by Scott Barber)
