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Dollar Index Climbs as Fed Meeting Looms; Aussie Falls - (Reuters)

Posted by Chris Advincula on Oct 29, 2013 6:36:00 AM
4:41am EDT

* Moves in dollar seen driven by position adjustment

* Fed expected to maintain massive stimulus programme

* Aussie hurt as RBA chief talks down the currency

By Anirban Nag

LONDON, Oct 29 (Reuters) - The dollar rose against a basket of currencies on Tuesday as some investors trimmed bets against it having already factored in expectations that the Federal Reserve will keep policy accommodative in the near term.

The dollar index gained 0.17 percent to 79.384, drawing some support from a stabilisation in U.S. Treasury yields and prospects of month-end demand. However, it held close to Friday's 78.998, its lowest since Feb. 1.

The index has shed about 1 percent this month, adding to a 2.3 percent drop in September, as investors pushed back expectations of when the Fed would scale back stimulus.

Traders said the latest moves were driven by position adjustments before the Fed's two-day policy meeting beginning on Tuesday.

Many have sold the dollar in recent weeks, suggesting that if the Fed stands pat on monetary policy, as widely expected, investors could buy back the greenback.

"Investors are expecting a dovish tone from the Fed and that is more or less priced in. There is a lightening of positions before the Fed, but volumes are low - at least 20-30 percent lower than usual," said Alvin Tan, currency strategist at Societe Generale.

Traders said it was unlikely the dollar would be adversely hit should the Fed choose to wait for more evidence of how badly Washington's budget battle hurt the U.S. economy before deciding on whether to reduce stimulus.

That has left the dollar less vulnerable to bad news. Rather there was scope for it to rally if U.S data began to beat expectations again, traders added.

"We are loathe to chase the dollar lower from here when it appears over stretched on valuation," BNP Paribas analysts said in a note.

One beneficiary of the dollar's decline has been the euro, which hit a two-year high of $1.3833 on Friday. It was flat on the day at $1.3780, with investors wary of pushing it higher given concerns that the European Central Bank may express discomfiture with the single currency's strength.

The Australian dollar retreated after the Reserve Bank of Australia chief tried to talk it down. It fell 0.5 percent to $0.9515. Last Wednesday, it hit $0.9758, a four-month high.


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