* Euro rallies to $1.42, highest in 9-1/2 months
* Fed intends to buy $600 bln of bonds by end of Q2 2011
* Analysts see more dollar downside; BOJ meets Nov. 4-5
(Adds details, updates prices)
By Wanfeng Zhou
NEW YORK, Nov 3 (Reuters) - The U.S. dollar fell against
the euro but rose versus the yen in volatile trade on Wednesday
after the Federal Reserve unveiled plans to buy $600 billion in
government bonds to help stimulate the economy.
The euro soared to a session peak of $1.42 on the EBS
trading platform immediately after the Fed's announcement, the
highest level since Jan. 20, as some investors said the total
size of bond purchases was slightly bigger than expected.
Markets were generally priced for the Fed initially to
commit to buying at least $500 billion in Treasury debt over
five months.
"This is negative for the dollar," said Michael Woolfolk,
senior currency strategist at BNY Mellon in New York. "Overall
we are very much bearish on the dollar and there is absolutely
no way you can look at today's Fed action as a positive."
The euro <EUR=EBS> last traded 0.7 percent higher at
$1.4136. It earlier hit a session peak of $1.42 on EBS, the
highest level since Jan. 20.
The euro then briefly surrendered gains to trade below
$1.40 as some investors reassessed the Fed's decision to buy
about $75 billion in longer-term Treasury bonds per month until
the second quarter of 2011. For details, see []
"I don't think the Fed over-delivered." said Richard
Franulovich, senior currency strategist at Westpac in New York.
"And beyond June, there's nothing, there no outlook. I am
slightly underwhelmed. The dollar did sell off, but I don't
think this spike in the euro has legs," he added.
The Fed said it would regularly review the pace and size of
the program and adjust it as needed depending on the path of
the recovery. In its post-meeting statement, the Fed described
economic growth as "slow", and said measures of inflation were
"somewhat low."
MORE DOLLAR DOWNSIDE
"After the dust settles, with the Fed the only major
central bank with a bias toward easing, the dollar is
vulnerable going forward," said Omer Esiner, chief market
analyst at Commonwealth Foreign Exchange in Washington D.C.
"Over the near-term, a dollar/euro near $1.45 is within the
realm of possibilities."
Some analysts believe the euro can climb even higher. BNY
Mellon's Woolfolk said "a euro/dollar at 1.50 by the middle of
next year is not out of the question."
But some remained skeptical about the euro's outlook given
renewed worries about the region's sovereign debt issues.
The dollar has lost nearly 8.0 percent versus a basket of
major currencies <.DXY> since September on expectations that
more monetary easing from the Fed would pressure U.S. yields
and diminish the return on dollar-denominated assets.
Alan Ruskin, head of G10 currency strategy at Deutsche Bank
in New York, said the Fed is "being pretty aggressive" at a
time when recent economic data has beat expectations and global
growth is still strong.
"The core medium-term strategy to look at long risk trades,
particularly in the (emerging markets) world still funded with
the U.S. dollar will remain unchanged," he said.
The dollar rose 0.6 percent against the yen to 81.13
<JPY=EBS>, hitting a high of 81.59 on EBS and taking out
options barriers at the 80.50 level.
The all-time low of 79.95 yen was still in focus and
traders remained on alert for possible yen-selling intervention
by Japanese authorities to weaken its currency.
The Bank of Japan meets on Nov. 4-5. The bank said it
brought forward its policy review to this week from
mid-November to heed calls to speed up the launch of its
5-trillion yen ($62 billion) asset buying scheme.
"Provided you see dollar weakness sustained against the
major currencies, I think the yen is likely to participate, so
we'll get another shot at 80 yen and below," Deutsche Bank's
Ruskin said.
The Fed announcement followed a day after the widely
expected outcome of U.S. midterm elections -- where the
Republicans took control of the House of Representatives while
the Democrats were set to hang on to the Senate.
[]
The U.S. dollar index <.DXY>, a measure of the greenback
versus a basket of six currencies, fell 0.5 percent.
(Additional reporting by Gertrude Chavez-Dreyfuss, Julie
Haviv, Nick Olivari and Steven C. Johnson;)
