WORLD FOREX:Dollar Rallies On Less-Dovish FOMC, Likely SNB Move

   By Riva Froymovich
  Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The dollar gained to session highs against its biggest rivals Wednesday on a benign policy statement from the Federal Open Market Committee and after the Swiss National Bank was said to intervene in the currency market.

The euro dropped to session lows of $1.3888 and Y132.98 Wednesday afternoon, while the pound fell to $1.6371 and the dollar advanced to Y96.07.

The Fed held rates near zero, and highlighted fresh signs of economic stability and the potential for an economic rebound.

"Many foreign exchange investors came into this expecting the Fed to be worried about the backing up of bond yields and trying to come out with a comfort statement. But the language certainly didn't go beyond what they said previously," said Steven Englander, chief U.S. currency strategist for Barclays Capital in New York.

In addition, the Fed failed to expand its quantitative easing program.

"From a foreign exchange perspective, it was not quite as dovish a Fed...for a Fed that's consistently surprised to the dovish side," said Englander.

As a result the dollar benefitted from a relief rally.

The Fed's aggressive easing policy for the last year has undermined the dollar's yield and attraction to investors.

However, dollar's move is likely to reverse, said Daniel Tenengauzer, head of foreign-exchange and emerging-market strategy at Bank of America-Merrill Lynch research in New York.

"This was exactly the same as the last statement," he said. As a result, "eventually, the move might be retraced."

Wednesday afternoon, the euro was at $1.3901 from $1.4081 Tuesday, and the dollar was at Y95.68 from Y95.24, according to EBS. The euro was at Y132.99 from Y134.11. The U.K. pound was at $1.6385 from $1.6460, and the dollar was at CHF1.0999 from CHF1.0666.

The dollar also found support on what traders said was likely two currency-market interventions by the Swiss National Bank.

The dollar gained as high as CHF1.1026 from an overnight low of CHF1.0633. The euro advanced to CHF1.5380 from an overnight low of CHF1.5011.

Officials at SNB couldn't be reached for comment to confirm. But North American traders said they saw the SNB buying dollars on the Electronic Broking System, or EBS, around noon in New York, after another sharp move near 7 a.m. EDT.

The SNB has been warning against excessive Swiss franc strength for months. The central bank has promised to fight the risks of deflation and shrinking economic growth, made worse by a strong currency, which also puts the price of Swiss exports at a disadvantage. Investors have been flocking to the franc because it is considered a safe haven amid the global financial crisis.

Currency analysts say the key level the SNB is watching is CHF1.50 against the euro and near CHF1.06 against the dollar.

The moves Wednesday follow another likely intervention June 18. But the market has retested that CHF1.50 level since then.

The last official intervention, which the SNB confirmed was in March after a policy meeting. The SNB sold the Swiss franc to push the euro up from the CHF1.48 area to over CHF1.53. It then signaled that this would be the central bank's policy to keep deflation at bay.

However, additional interventions have not come regularly and currency investors have tested the SNB's resolve. As a result, SNB jawboning, or comments by central bank officials that they'd like to see the Swiss franc exchange rate lower, has had a decreasing impact on traders.

Currency analysts are comparing the SNB's strategy to that taken by the Bank of Japan in 2003 and 2004 to weaken the yen.

In those years, the BOJ engaged in massive purchases of the yen's rivals and left its interventions unsterilized, at the same time as it was doing quantitative easing. This increased the level of available liquidity, eventually leading to reflation.