US dollar weakens, eyes on Fed meeting

TOKYO (Sept 12)   The dollar weakened in Asia Thursday as attention turns to a US Federal Reserve policy meeting while hopes grew among traders for a diplomatic solution to the Syria crisis.

The greenback fetched 99.44 yen in Tokyo afternoon trade, down from 99.92 yen in New York and well off the levels around 100.50 yen seen on Wednesday in Asia.

The euro slipped to 132.36 yen from 133.03 yen while it bought $1.3309 compared with $1.3314.

With no fresh catalysts, eyes are now on next week's Fed meeting, where policymakers are expected to announce plans to start unwinding the bank's huge stimulus programme.

A pull-back of the $85 billion a month bond-buying scheme - which keeps US interest rates subdued by keeping US bond yields low - would mean fewer dollars in the financial system, which in turn would send the value of the currency up.

However, last week's worse-than-forecast August jobs report indicated the US economy still needs some support, leading analysts to speculate that the Fed will not be aggressive in its taper.

“US Treasury yields have lost some upside momentum as tapering worries have eased,” Credit Agricole said.

“Consequently the (dollar) continues to lose ground and looks vulnerable to further slippage in the days ahead.”

However, reports that Japanese Prime Minister Shinzo Abe is ready to go ahead with sales tax increases aimed at bringing down the country's national debt have boosted the chance of more stimulus from that country's central bank, analysts said.

“We expect the yen to fall sharply as the Bank of Japan announces additional monetary stimulus to offset the impact of the substantial fiscal tightening... if the Abe government presses ahead with the planned doubling of consumption tax,” National Australia Bank said.

Reports in Japan said Abe will launch a fresh economic package worth about five trillion yen ($50 billion) to cushion the increase in taxes.

Investors are also showing an appetite for riskier, higher-yielding currencies as they hope the United States and Russia will reach a deal that will see Syria hand over its chemical weapons and avert an American military strike.

US Secretary of State John Kerry is due to meet his Russian counterpart in Geneva as the two sides seek a diplomatic solution to the crisis, which was sparked by the Assad regime's alleged use of chemical weapons on its own civilians.

The dollar was lower against other Asia-Pacific currencies.

The US unit sank to Sg$1.2677 from Sg$1.2699 the previous day, to 31.70 Thai baht from 32.14 baht and to Tw$29.68 from Tw$29.78.

The dollar also fell to 11,309 Indonesian rupiah from 11,412 rupiah, to 1,084 South Korean won from 1,087 won, to 63.50 Indian rupees from 63.87 rupees and to 43.77 Philippine pesos from 43.86 pesos.

The Australian dollar slipped to 92.51 US cents from 92.87 US cents.

The Chinese yuan dropped to 16.22 yen from 16.41 yen.