Dollar falls in Asia as Fed prepares to meet

Agence France-Presse

Posted at Aug 10 2010 10:54 AM | Updated as of Aug 10 2010 06:54 PM

TOKYO - The dollar fell against the yen in Asian trade Tuesday amid speculation the US Federal Reserve will continue to signal low interest rates to bolster a flagging economy when it meets later in the day.

The dollar slipped to 85.80 yen in Tokyo morning trade from 85.87 in New York late Monday. The euro fell to 1.3188 dollars from 1.3227 and to 113.15 yen from 113.65.

The Fed "could this week decide to reinvest proceeds from maturing mortgage-backed securities, rather than allow its portfolio to shrink naturally", Barclays Capital analysts wrote in a note.

"This has led to lower US rates and dollar weakness. We think that it is important to note that both interest rates and equities are important drivers of currencies at the moment," they added.

Analysts have been debating possible steps the federal Reserve could adopt at the meeting of the policy-setting Federal Open Market Committee (FOMC), with some saying it may step up "quantitative easing" -- pumping money into the economy through the purchase of assets.

Fears are growing that US economic growth since the middle of last year -- following a brutal recession in December 2007 -- could stall amid an embattled US labour market and lacklustre consumer spending.

US GDP growth fell back sharply to 2.4 percent in the second quarter, the Commerce Department said last month, slamming the brakes on an already tepid rebound and painting a bleak picture of the road ahead.

Investors were also waiting for a Bank of Japan monetary policy meeting later in the day, although markets are expected to be muted to the widely expected decision to keep lending rates unchanged at 0.1 percent.

Market players will be watching China's July exports data which are expected to show that exports in July fell to 42.0 percent from 43.9 percent in June.