* Dollar rises to 2-week high vs yen, 1-wk high vs euro
* Fed eyes gradual bond buys; several hundred bln dlrs -WSJ
* ECB allots more than forecast in 3-mth tender
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, Oct 27 (Reuters) - The dollar rose broadly on
Wednesday as signs the U.S. Federal Reserve would take a more
gradualist approach than expected to new quantitative easing
next week prompted players to liquidate some short dollar
positions.
The dollar hit a two-week high against the yen and a
one-week peak versus the euro, which was also knocked by euro
zone banks taking up more cheap funding than expected at a
three-month ECB tender [].
The greenback jumped against the Australian dollar too and
hit a one-month high against the Swiss franc <CHF=>.
The Wall Street Journal said the Fed would make bond
purchases worth a few hundred billion dollars over several
months, which compared with investors' base-case scenario for an
initial commitment to buy at least $500 billion. []
In a Reuters survey earlier this month, U.S. primary
dealers' projections for the size of the Fed's expected
quantitative easing at its Nov. 2-3 policy meeting ranged from
$500 billion to $1.5 trillion. []
"There is a sense that the Fed might go for QE light, rather
than a second round of shock and awe," said Michael Derks,
currency strategist at FXPro.
"A risk taker who has made money being short dollar since
the summer would probably be inclined to take risk off the table
as we approach year-end, and in particular before the Fed
meeting. This could be somewhat helpful for the dollar".
By 1134 GMT, the euro was down 0.5 percent at $1.3791
<EUR=>. It earlier fell as low as $1.3772 as a break of an
option barrier at $1.3800 accelerated selling.
Losses were limited, however, with traders reporting central
banks and other major players looking to buy the euro on dips
below $1.38. Bids were expected around $1.3750/60. A break of
$1.3750 could prompt a test of last week's low around $1.3695.
Many analysts believe the gap between euro zone and U.S.
short-term rates -- reflecting expectations the Fed will opt for
QE while the ECB gradually withdraws liquidity -- will mean the
euro is unlikely to fall below $1.35 in the next month or two.
"There is not great downside potential (for the euro) as the
Fed is adopting a looser monetary policy while the direction of
the European Central Bank seems to be the opposite," said
Roberto Mialich, currency strategist at Unicredit in Milan.
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PDF on G20's uneasy truce: http://r.reuters.com/nan99p
FX column on the Fed: []
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DOLLAR SUPPORTED
The dollar was also supported by a rise in U.S. Treasury
yields, with the benchmark 10-year yield <US10YT=RR> rising to a
one-month high on Tuesday. []
The dollar index, which tracks the performance of the
greenback versus a basket of six other major currencies, was up
0.3 percent at 77.958 <.DXY>.
"The rise is primarily positioning - everyone is short. But
to some extent it's also valuation - the dollar is cheap
particularly against the yen, the Swiss franc and the Aussie,"
said Adrian Schmidt, forex strategist at Lloyds TSB.
Against the yen, the dollar rose as high as 81.98 yen
<JPY=>, pulling further away from a 15-year low of 80.41 yen
struck earlier this week on trading platform EBS.
Traders said a fair amount of overnight 82.00 yen strikes
were bought on Tuesday, suggesting that area could be sticky
going into Wednesday's 1400 GMT cut -- when many trades expire.
Option-related stops were then highlighted at 82.15 yen.
The Aussie dollar was down 1.5 percent at $0.9704 <AUD=D4>,
dented by a smaller-than-expected rise in Australian consumer
prices last quarter which was seen as reducing the chances of an
interest rate rise next week.
(Additional reporting by Jessica Mortimer and Nia Williams;
Editing by John Stonestreet)
