* Dollar index hovers near 1-month low
* Fed may extend Operation Twist, QE3 seen unlikely
* Dollar may rise if Fed refrains from QE3
SINGAPORE, June 20 (Reuters) - The euro eased versus the dollar but clung to much of the previous day's gains on Wednesday, with investors focusing on whether the U.S. Federal Reserve will adopt further monetary stimulus to support the economy's recovery.
The euro also gained some support from signs that Greek parties may be close to forming a coalition government, and as Spanish government bonds gained a bit of respite on Tuesday after a recent sell-off.
For now, however, the Fed's policy decision due later on Wednesday is taking centre stage.
"I think the overwhelming factor is some expectation of Fed stimulus today," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
"Looking at the overnight moves, it's not just the euro that has risen," he said. "We've had a bunch of currencies taking advantage of the softness of the dollar."
The euro dipped 0.1 percent to $1.2671, giving back a bit of ground after climbing about 0.9 percent on Tuesday.
Resistance for the euro lies at $1.2748, a one-month high struck on Monday after Greek voters backed a pro-bailout party in weekend elections and fears of a disorderly Greek exit from the euro zone receded.
Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, cautioned against reading too much into the previous day's rise in the euro.
"It's hard for the euro to rise for reasons other than short-covering," Okagawa said, adding that the euro will probably trade in a range roughly between $1.23 to $1.28 over the next month.
With Spain's 10-year government bond yields having hit euro-era highs this week, fanning speculation that Spain may need a full-blown bailout, market players expect any bounce in the euro to be limited.
The dollar hovered near a one-month low against a basket of currencies ahead of the Fed's decision on Wednesday.
The dollar index stood at 81.459 , not far from a one-month low of 81.186 hit on Tuesday.
While many market players doubt that the Fed will go so far as to launch another round of quantitative easing, a policy that entails the expansion of its balance sheet via bond purchases, there might still be some disappointment if the Fed holds off from such stimulus, market players say.
A more likely scenario is for the Fed to extend "Operation Twist", a programme aimed at pushing down long-term borrowing costs by selling short-term securities to buy longer-term ones. The scheme is now due to end in June.
If all the Fed does is to extend "Operation Twist", the dollar could head higher, said Credit Agricole's Kotecha.
"There is some, perhaps in our view, misplaced hopes for QE3 today. We believe the Fed will probably extend its Operation Twist, but think QE3 seems unlikely at this stage," said Credit Agricole's Kotecha.
"So that could provoke a bit of disappointment if that is the case," he said.
The dollar eased 0.1 percent versus the yen to 78.88 yen . There was talk of stop-loss offers below 78.50 yen, while stop-loss bids were said to be lurking at levels above 79.50 yen.
Forex Bureaux Face Imminent Shutdown - Modern Ghana
The Bank of Ghana is putting the activities of forex bureau operators in its monitoring radar for possible sanctions and license withdrawal. Suleiman Mustapha asks why
The Bank of Ghana has threatened to impose severe sanctions including license withdrawal of forex bureau operators who accept deposits and do large foreign exchange transactions.
Central Bank Governor and Chairman of the Monetary Policy Committee (MPC) of the Bank of Ghana, Mr Kwesi Amissah-Arthur has on the sidelines of an MPC news conference in Accra hinted some forex bureau operators are now accepting deposits and doing large foreign exchange transactions.
The bank is therefore setting out measures to monitor the activities of forex bureau operators in a bid to stem the rising spate of dollarization of the national economy.
“Yes we are worried that some of the forex bureau operators now accept deposits like the normal banks and transact large volumes of foreign exchange business”.
“They are part of the problem and we will soon be rolling out tough measures to stem their illegal activities”, the Governor said.
The Bank of Ghana is even more worried of the growing trend of dollarization, which he partly blamed on the activities of forex bureau operators.
According to the Governor, the central bank will continuously be reviewing the books and constantly monitor the activities of forex bureau operators for possible sanction in breach of the country’s foreign exchange rules.
“It is our view that this will contribute to restoring confidence in the cedi” he said, adding that “the Bank will issue the necessary notices to this effect in due course”.
“They are supposed to do spot transaction of the small foreign currency, which does not require having to go to the commercial banks to exchange”.
“But what we have observed is that some of them are accepting deposits and moving large volumes of foreign exchange around”, he added.
The Bank of Ghana has mopped up GH¢1.2 billion in excess liquidity from the system in a bid to stem the exchange rate pressure and reduce demand for dollars.
In a move to halt the growing trend of ‘dollarization’ and stabilize the cedi, the Central Bank is also reviewing the currency composition of the reserve requirements of commercial banks.
Dollarization is characterized by a tendency for businesses to sell their goods and services in foreign currencies, particularly, dollars.
The service providers quote exchange rates that are significantly off-market. The fringe exchange rates trickle down into the market and become benchmark rates, unduly influencing market rates.
The situation has fuelled price increases in the country and led the Bank of Ghana to tighten monetary policy, alter bank reserve requirements and reintroduce several bonds.
“The committee notes that the measures have begun to take effect. Increase in the policy rate have led to upward adjustments in rates of money markets instruments and improve the attractiveness of cedi assets compared to foreign currency assets”, Mr Amissah-Arthur said.
According to the Governor, though the Bank of Ghana was not considering abolishing the operation of foreign exchange accounts by citizens, it would move to restore the pre-eminence of the cedi in domestic transactions, which required strict adherence to the provisions of the Foreign Exchange Act 2006 (Act 723) and the accompanying regulations.
The Governor was worried about the large dollar deposits in commercial bank accounts, which he said had significantly contributed to the exchange rate pressure.
At the moment, the share of foreign currency deposits to total deposits in the banking system has increased from 27.9 per cent in April 2010 to 28.2 per cent in April 2011 and further to 31.8 per cent in April this year.
This means that some commercial banks have more foreign currency deposits than domestic currency in their total deposit.
The Bank of Ghana feared that those banks could be importing large volumes of foreign currency to service the needs of their clients.
During the first five months of the year, the cedi depreciated cumulatively by 15.1 per cent against the US dollar, compared to 1.9 per cent depreciation in the same period of 2011.
In recent weeks however, the pace of depreciation of the cedi has moderated as a result of the measures introduced to restore stability.
The real effective exchange rate depreciated by 6.8 per cent in January – April 2012, compared with a real appreciation of 5.9 per cent in the same period of 2011.
But Governor Amissah-Arthur assured Ghanaians that the end of the cedi fall was in sight
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