* Dollar falls as Fed pledges to keep US rates low
* Yen gains from US yield fall; dlr/yen at 90 yen eyed
* BoE King's comments on FX slam sterling
(Recasts, updates prices, adds quotes, changes byline)
By Jamie McGeever
LONDON, Sept 24 (Reuters) - The dollar mostly weakened on
Thursday a day after the Federal Reserve indicated U.S. interest
rates will stay very low for a long time, while comments from
the top UK central banker pushed sterling down across the board.
One of the biggest gainers was the Japanese yen, which
benefited from dollar's fall in tandem with the post-Fed decline
in short-term U.S. bond yields.
The biggest mover on the day Thursday was sterling, which
tumbled in response to comments from Bank of England Governor
Mervyn King in a regional British newspaper highlighting the
benefits to the economy from a weak exchange rate.
The euro scaled 91.00 pence for the first time in almost six
months, a rise of more than one percent on the day. This boosted
the euro versus the dollar, but that move was limited by the
weaker-than-forecast Ifo measure of German business sentiment
[].
In reiterating its low interest rate pledge, the Fed sounded
less hawkish than some had expected, even though it also
indicated the economy continues to improve [].
"Fed policy is crucial for dollar/yen. And the message for
now is nothing has changed," said Derek Halpenny, senior
currency economist at BTM-UFJ in London.
The difference between two-year U.S. and Japanese government
bond yields shrank by as much as 10 basis points in the wake of
the Fed statement to below 75 basis points, eroding the dollar's
returns over the yen.
The dollar fell as low as 90.36 yen <JPY=> on Thursday,
according to Reuters data, and at 1200 GMT was down two thirds
of a percent on the day at 90.70 yen.
Dealers said the market wanted to push the dollar down to
90.00 yen, a psychologically important level where there's a lot
of options barriers, payouts and strikes building.
FX AND G20
The euro was up more than one percent at 91.10 pence
<EURGBP=>, having earlier hit as high as 91.37 pence shortly
after King's comments [].
"They're not hugely surprising ... but they were made on a
day when the pound was already on a fragile footing and moving
lower," said Halpenny at BTM-UFJ.
More than 1,700 euro/sterling trades went through Reuters
Matching in the hour after King's comments, the most in a single
hour for at least three months, Reuters data showed.
Sterling was last down almost 1 percent against the dollar
at $1.6190 <GBP=>, while the euro was up 0.3 percent against the
greenback at $1.4760 <EUR=>, almost a cent off the one-year high
of $1.4845 hit the previous day.
Traders noted the contrast in King's comments with those
from euro zone capitals suggesting some discomfort with the
euro's strength and the need for Group of 20 leaders to address
global imbalances, notably Asian currency weakness, at this
week's meeting.
German Chancellor Angela Merkel said currencies should be
part of the discussion in Pittsburgh, and finance minister Peer
Steinbrueck specifically mentioned the Chinese yuan as a focus
for discussion.
"One of the main agendas for the G20 summit is the
discussion of options to address global structural imbalances,
which would make it difficult to exclude currencies from the
discussion," currency strategists at Brown Brothers Harriman
wrote in a note Thursday.
Meanwhile, the euro fell to a three-month low against the
Swiss franc below 1.51 francs <EURCHF=>, as traders tested the
resolve of the Swiss National Bank, which has intervened in the
market this year to counter franc strength.
There was no sign of the SNB in the market on Thursday,
traders said, with some doubting the SNB would come into the
market ahead of the G20 meeting.
