Dollar weaker vs yen as U.S. data quash rate hike bets, pound drops
London (Sept 7) The dollar fell to its lowest inmore than a week against the yen on Wednesday as subdued U.S.data made an interest rate increase this month unlikely anddrove investors to cut favourable bets in the greenback.
In Europe, sterling fell for the first time in sixdays against the dollar hurt by weak factory data. It was 0.5percent lower at $1.3375 with the focus on Bank of England chiefMark Carney's testimony to lawmakers. His appearance comes aftera slew of robust data in the past week saw fears of a recessionin the near term abate.
The dollar was down 0.45 percent at 101.50 yen afterdipping as low as 101.20 earlier, its lowest since Aug. 26--when Federal Reserve chair Janet Yellen gave an upbeat speechon the economy that revived bets of a rate hike in the nearterm.
Since then, the dollar has been struggling to make headwayand tumbled more than 1 percent against the yen on Tuesday.
"Since the Jackson Hole speech, the implied probability ofFed's rate hike for its September meeting fell from 42 percentto 24 percent and the 2-year Treasury yield dipped by around 10basis points," said Petr Krpata, currency strategist at ING.
"Clearly, this is a challenging environment for the dollar."
The Institute for Supply Management's non-manufacturingpurchasing managers' index fell to 51.4 last month, far short ofeconomists' expectations and the largest one-month drop sinceNovember 2008. The Fed's labour-market conditions index also fell inAugust, slipping back into negative territory after a positivereading in July.
Nonetheless, San Francisco Fed President John Williams saidin prepared remarks late on Thursday that the economy was in"good shape" and that it "makes sense to get back to a pace ofgradual rate increases, preferably sooner rather than later."Williams did not directly cite Thursday's data. Despite the upbeat rhetoric from the Fed, Morgan Stanleyanalysts do not expect the Fed to hike at all this year as theU.S. economy is expected to slow down from here.
"For the rates market to adjust accordingly, it may requirethe Fed to change its language, which has not happened yet asWilliams illustrated overnight," Morgan Stanley strategists saidin note, adding once the Fed adjusts its communication, thedollar would fall against the euro and the yen at a faster pace.
Also helping the yen was the Sankei newspaper's reportsaying Bank of Japan policymakers were divided ahead of thecentral bank's Sept. 20-21 meeting, at which BOJ GovernorHaruhiko Kuroda has said the board will conduct a comprehensiveassessment of its massive stimulus programme. Despite the dollar's weakness, the euro underperformed, hurt by data that showed German industrialproduction post its steepest fall in nearly two years in July. The European Central Bank holds its next Governing Councilmeeting on Thursday, where it is expected to keep policy steady. Meanwhile, Sweden's crown rose to a day's highagainst the euro of 9.50 crowns per euro amid relief that theRiksbank stood pat on rates, as expected. The crown had fallento a one-year low last week after a slew of weak economic data.