The struggling dollar got a reprieve on Tuesday, helped by a report that the Federal Reserve was weighing a more open-ended, smaller-scale bond buying programme compared with 2009. Soft US stocks encouraged profit-taking in riskier currencies, while a report that the Bank of Japan will consider loosening policy also helped the dollar by hampering the yen.
Still, many traders think the greenback is in a downtrend given the speculation that any future QE by the US Federal Reserve, even in a modest form, would probably still be more aggressive than other central banks.
The dollar index managed to keep some distance from a seven-month trough of 79.19 hit on Monday, standing at 79.40, flat on the day. The dollar was hemmed in a tight range against the yen, drawing marginal support from the Nikkei business daily's report that the BoJ may further ease policy at its October 4-5 meeting if it judges growth to be under threat.
That weighed on the yen as it revived talk the central bank could undertake more quantitative easing next week by injecting longer-term funds into the money market, or opt for the more controversial move of buying more Japanese government bonds. The dollar was little changed from its New York's close at 84.25 with support at 84.05, the 61.8 percent Fibonacci retracement of its rise in the hours before and after Tokyo's intervention on September 15.
The euro, while not beset by QE fears, was no less vulnerable to fiscal debt woes in Europe. It was little changed at $1.3465, away from Monday's five-month peak of $1.3507, after Moody's downgrade of the lower-grade debt at Anglo Irish Bank led investors to sell into the common currency's recent gains.
The euro's retreat meant it had failed the first test of resistance at $1.3511, a 50 percent Fibonacci retracement of its fall from $1.5145 last November to its June low around $1.1876. The Swiss franc, on the other hand, flew at 0.9842 per dollar, in sight of a 30-month peak of 0.9776 hit last week. The Australian dollar, another clear winner, was strong at $0.9601. Many believed it could retest its record peak of $0.9851 in coming weeks before charging to parity.
Some traders expect more selling in the greenback from Japanese exporters towards the end of Japanese financial half-year end on September 30, though so far such seasonal flows have been limited. There are said to be some stop-loss orders around 83.80 yen, though deep falls beyond that level are unlikely given concerns about Japanese intervention, traders said.