Dollar rebounds after steep losses, but outlook grim

Reuters (20/9) - The dollar recovered on Thursday, a day after incurring sharp losses as the Federal Reserve shocked investors and unexpectedly kept its stimulus program intact, but its prospects remained bleak with low U.S. interest rates seen staying for some time. Fed Chairman Ben Bernanke, pointing to tightening financial conditions, on Wednesday refused to commit to reducing the bond purchases this year. The Fed also cut growth forecasts for 2013 and 2014, citing strains in the economy from tight fiscal policy and higher mortgage rates. By not tapering, the Fed 'has arguably removed the single most bullish prop for the U.S. dollar,' said Richard Franulovich, senior currency strategist at WestPac in New York. The safe-haven yen fell on Wednesday too, sliding to a 3 1/2-year low against the euro, as the Fed's decision sparked a rally in riskier assets and currencies. So widespread was the yen sell-off that it also hit a 23-year low against the Swiss franc. The dollar index .DXY was last up 0.2 percent, at 80.373, erasing some of the previous session's 1.1 percent drop, its biggest one-day slide in more than two months, after the Fed kept the size of its asset-buying program at $85 billion a month. The general expectation was that the Fed would reduce its bond purchases by $10 billion. The index has fallen to levels not seen since well before Bernanke in May first floated the idea of reducing the stimulus. On Wednesday, it fell to its lowest level since February. The dollar's losses saw the euro hit a 7 1/2-month high of $1.3568, with this year's high of $1.3711 the target for some euro bulls, traders said. The euro was last little changed at $1.3524. http://www.reuters.com/article/2013/09/19/us-markets-forex-idUSBRE98F0L120130919