The dollar held above a one-month low against a basket of major currencies on Thursday, no worse for wear even after the Federal Reserve delivered another dash of monetary stimulus and said it was ready to do more if necessary. Dollar bears were stopped from rampaging by the fact the Fed stopped short of launching a more aggressive programme of buying bonds outright, or QE3, which some in the market had expected, traders said.
The central bank expanded its "Operation Twist" by $267 billion, meaning it will sell that amount of short-term securities to buy longer-term ones to keep long-term borrowing costs down. The program, which was due to expire this month, will now run through the end of the year.
Analysts said the outlook for the dollar remained clouded with more market players likely to position for fresh stimulus from the Fed following the central bank's move to downgrade its US growth forecast. "We expect more monetary easing down the road," Rabobank's senior US strategist Philip Marey wrote in a client note. "The unemployment rate is still far above its target and expected to remain above target at least until 2014. What's more, the recovery remains fragile and uneven."
The dollar index stood at 81.579, staying above a one-month low of 81.186 hit earlier in the week. The euro dipped 0.2 percent to $1.2675, having risen to a high of $1.2744 the previous day, near a one-month peak of $1.2748 set on Monday. A focal point for the euro is the possibility of further policy steps to contain the euro zone's debt crisis.
The single currency got a lift on Wednesday after German Chancellor Angela Merkel said that both of Europe's bailout programmes included mechanisms for buying state debt on the secondary bond market. Merkel stressed that this was a "purely theoretical" question and was not being discussed. Against the yen, the euro slipped 0.1 percent to 100.94 yen , backing away from a one-month high of 101.42 yen hit on Wednesday. Euro-selling by Japanese exporters helped drag the single currency lower against the yen, said a trader for a European bank in Tokyo.
The dollar inched up 0.1 percent against the yen to 79.63 yen, getting some support after US Treasury yields edged up the previous day. The Australian dollar dipped 0.3 percent to $1.0157, retreating from a seven-week high of $1.0225 hit the previous day. The Aussie dollar hit an intraday low after a private-sector survey showed that China's factory sector contracted for an eighth straight month in June, with export orders at their weakest since early 2009.
Still, the Aussie dollar's reaction to the signal of weakness in China was relatively subdued. Earlier on Thursday, the New Zealand dollar jumped above $0.8000 for the first time since early May after data showed New Zealand's economy grew 1.1 percent in the January-March quarter, more than double what economists had expected.