Dollar Losses Value As Fed Credibility Questioned

The dollar fell sharply against its major rivals Thursday as continued talk of another round of Federal Reserve stimulus to kick-start a slowing U.S. economy contrasted with better-than-expected data out of the euro zone, where the central bank remains on the path to policy normalization.

Positive earnings reports from European blue-chip companies also stoked a bid into riskier, higher-yielding assets, reducing the appeal of the safe-harbor dollar.

EURUSD is brushing up against USD1.39, hitting recent intraday high of USD1.3898 from USD1.3766 late Wed. The pair benefits from earlier released better-than-expected euro-zone data and strong European corporate earnings. Risk also stoked by positive surprise in US weekly jobless claims. USD weighed down broadly by continued expectations of another round of Fed stimulus.

The ICE Dollar Index, which tracks the U.S. currency against a trade-weighted basket of others, was at 77.540 from 78.103.

The Bank of Japan also was in the spotlight Thursday after it left key rates unchanged, but announced details on its own massive asset-purchase plan.

The dollar declined against the Japanese yen, threatening to break below JPY81, as part of its broad downtrend.

Market expectation

If the euro zone continues to register better-than-expected data, such as Thursday's economic sentiment indicator that surprised to the upside, the European Central Bank is likely to remain on a path to monetary policy normalization, eventually raising key rates, contrasting with a Fed that is likely to still be in a phase of ultra-loose monetary policy, analysts said. That contrast will keep the dollar on the defensive in the longer term.

EURUSD is testing at USD1.3890/05 (intra-day support-resistance levels), with resistance levels at USD1.3960 (intra-day level) and USD1.3980 (Oct 26 high). On the downside, support levels lie at USD1.3800 (intra-day level), and below here, USD1.3770/90 (intra-day level) and USD1.3730 (Oct 27 low).On the short-term, the pair's upside target lies between USD1.3900 and USD1.3950, say analysts.

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