The dollar held steady against the euro on Thursday after falling for three straight days as investors refrained from actively selling the US currency due to uncertainty surrounding a looming fiscal crisis. The so-called "fiscal cliff" outweighed dollar-bearish news stemming from Wednesday's Federal Reserve announcement.
The Fed, after its two-day policy meeting, said it would extend its bond-buying economic stimulus program into 2013, with a plan to purchase $85 billion a month of mortgage-backed securities and Treasuries. The Fed's bond buying, called quantitative easing, is negative for the dollar as it is tantamount to printing money and dilutes its value.
The Fed also said interest rates would remain near zero until unemployment falls to at least 6.5 percent, explicitly linking its policy path to unemployment and inflation. Without higher rates or the Fed scaling back the amount of available dollars in the economy, the dollar's upside is limited. It could gain, however, if the White House and Congress cannot reach a deficit reduction deal by the end of the year. Failure to reach an agreement will automatically trigger massive spending cuts and tax increases in 2013. This so-called "fiscal cliff" should buoy the dollar due to its safe-haven status.
The euro was last flat at $1.3074, having hit a session low of $1.3039 and a session high of $1.3100. With the Fed actively targeting economic data, the dollar could see a boost if data shows any sign of improvement, analysts said. But they also cautioned that the euro could remain supported in the near term with positive developments in the euro zone and successful bond auctions in Italy.
The European Union reached a landmark deal on Thursday to make the European Central Bank the bloc's top banking supervisor, a move that was seen as a step closer to resolving the debt crisis. The dollar was expected to rise further against the Japanese currency on expectations the Bank of Japan will ease monetary policy further. The BoJ meeting will take place after Sunday's election, which looks set to see the opposition Liberal Democratic Party clinch a resounding victory. LDP leader Shinzo Abe has been pushing the BoJ for more powerful monetary stimulus.
Part of the reason for the rise in dollar/yen was higher US Treasury bond yields, which makes the dollar relatively more attractive against its low-yielding Japanese peer. Against the yen, the dollar was at 83.58 yen, up 0.4 percent on the day, according to Reuter data.