FOREX-U.S. dollar holds steady before Fed announcement
* Market awaits signals on Fed's next policy step
* Fed expected to keep options open on pace of bond buying
* Dollar nears four-month low versus major currencies
NEW YORK, June 19 (Reuters) - The dollar was steady against major currencies on Wednesday, with markets in a holding pattern ahead of a Federal Reserve policy announcement and news conference that could shed light on the direction of U.S. monetary policy over the next months. Speculation that the Fed might start slowing down its asset-buying soon had triggered a recent sell-off in global stocks and sent the safe-haven Japanese yen up 5 percent so far this month against the dollar. Analysts and fund managers said Federal Reserve Chairman Ben Bernanke would likely try to soothe nervous market participants, which could boost riskier assets such as equities and drive the dollar up against the yen. Any indication that the Fed is unlikely to scale back stimulus any time soon could pressure the dollar broadly. Fed policymakers will likely announce that they will continue to buy bonds at a monthly pace of $85 billion, while keeping their options open to scale back the stimulus program later this year if the U.S. labour market improves.
"I think the market is a bit ahead of itself on the tapering story," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "It's going to be quiet going into it, then I think it will turn very volatile in the U.S. afternoon following the Fed statement and the press conference," he said. "People generally lack much conviction about the near-term direction and how the markets respond to the Fed." The policy-setting Federal Open Market Committee will announce its decision at 2:00 p.m. EDT (1800 GMT). Bernanke will hold a news conference 30 minutes later. The dollar index, which measures the greenback against a basket of currencies, was flat at 80.588, holding near a four-month low of 80.500 struck on Thursday. The dollar slipped 0.3 percent to 95.01 yen, staying above the 93.78 yen hit last Thursday, which was its lowest since April 4. Resistance was cited at 96.13 yen, which is the 23.6 percent Fibonacci retracement of the dollar's fall to 93.78 yen on June 13 from 103.73 yen on May 22. The euro was little changed at $1.3393, while against the yen, the euro fell 0.3 percent to 127.28 yen. It will be a difficult task for the Fed," said Ian Gunner, portfolio manager at Altana Hard Currency Fund. "Tapering is on the table but at the same time they will try and make it clear this is a process and very much data-dependent." "If the Fed manages to communicate this properly, then we could see the dollar lose some ground against the more riskier currencies. We could also see the dollar/yen climb towards 98-99 yen." Bernanke is also expected to emphasise that a scaling back of its stimulus program would not be akin to tightening and that a rise in the funds rate was a distant prospect. Analysts said the Fed is likely to downgrade forecasts for growth and possibly for inflation as well.