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Weak U.S. Data Is Pushing The FED Toward QE2

The dollar fell to a fresh two-week low against the yen and slumped against other rivals in Asia on Wednesday as expectation mounted that continuing weak U.S. economic data will push the Federal Reserve toward more monetary easing.

The greenback dropped Wednesday afternoon in Tokyo to JPY83.65, its lowest since Sept. 15. On that day Japan sold an estimated JPY2 trillion to weaken the yen in the country's first foray into currency markets in more than six years.

The dollar's woes came after a report overnight added to signs of distress in the world's biggest economy. The index of consumer confidence by the private research group, the Conference Board, fell to 48.5 in September from a revised 53.2 in August, missing expectations for a 52.0 reading.

A key measure of the dollar's broad performance fell to its lowest level in eight months. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, including the euro and yen, fell to 78.828, its lowest since Feb. 3. At 0250 EDT, the index was at 78.865, down from 78.904 late Tuesday in New York.

At 0250 EDT, the dollar was at JPY83.67, down from JPY83.89 late Tuesday in New York. The euro was at USD1.3583, compared with USD1.3590. Against the yen, the common currency was at JPY113.65 compared with JPY114.00.

The Pound had a wild day yesterday with two way action after an initial rally in Europe was sold aggressively against the trend in the US on comments from BOE Posen that there was a very clear case for further QE in the UK and serious downside risk existed if not enough support was given.

The Australian dollar reached another 26-month high against the U.S. dollar Wednesday as a strong performance by U.S. equities overnight boosted the currency.

Some analysts said the foreign exchange market is moving back to a focus on interest rates, to the dollar's detriment.

Traders say Japan could intervene again soon.

European stocks are expected to open a touch higher Wednesday, taking their cue from upbeat U.S. and Asian sessions as the prospect of further monetary easing grows. But gains are likely to be limited as investors continue to fret about sovereign debt woes.

EURUSD may test upper at USD1.3740 and the support may settle at USD1.3334, technical analysts said.

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