Dollar hits two-week low against yen, ECB in focus

[June 02, 2016]  By Jemima Kelly

LONDON (Reuters) - The dollar hit a two-week low against the safe-haven yen on Thursday, weighed down by uncertainty over whether the U.S. Federal Reserve will raise interest rates in June or July.

While the greenback was down against most major currencies, it was flat against the euro ahead of a European Central Bank news conference at 1230 GMT (8.30 a.m. ET). Investors expect the ECB to raise growth and inflation forecasts, which some strategists said could lift the euro from its current $1.11925.

The euro was unchanged after the ECB kept interest rates unchanged, as expected, with the deposit rate remaining at its historic low of -0.4 percent.

Strategists said comments from Bank of Japan board member Takehiro Sato, who said earlier on Thursday he was opposed to deepening negative interest rates, had lifted the yen, which was already trading strongly on the back of subdued risk sentiment across markets.

"Both the ECB and the BOJ (Bank of Japan) have learnt that when you try to stimulate inflation with a weaker currency, it’s a bit like giving a kid some sugar - it gives you a short period in which inflation heads higher, but it doesn’t really help resolve the underlying issues," said London-based BNP Paribas currency strategist Michael Sneyd.

The dollar was down half a percent by 1155 GMT at 108.99 yen, having earlier touched 108.825 yen, its lowest for two weeks. That was around 2.5 percent down from a one-month high of 111.455 yen set on Monday.

In London, BNY Mellon currency strategist Neil Mellor said Sato's comments might have lifted the yen a little, but its strength had more to do with doubts over whether Japan would be willing to intervene to weaken the currency, as well as uncertainty over Fed interest rate rises.

"It's (Japanese Prime Minister Shinzo) Abe's worst nightmare," said Mellor. "Despite all the efforts behind Abenomics ... it's still an export-oriented economy, much to Abe's chagrin. What he wants is a weaker yen to buoy exports."

Light is cast on a U.S. one-hundred dollar bill next to a Japanese 10,000 yen note in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano/File Photo
 

The greenback had strengthened to a two-month high against a basket of currencies at the start of the week, after Fed Chair Janet Yellen kept alive the possibility of a rate hike at this month's meeting.

But it has since lost about 1 percent and hit a six day low of 95.153 on Thursday, with sceptical investors pricing in only a 20 percent chance of a hike in June, according to CME's FedWatch.

The dollar will await the U.S. May ADP private employment report due at 1215 GMT for direction, with the report often seen providing clues to the all-important non-farm payrolls data scheduled for release on Friday.

After hitting a five-month low on Wednesday and having got within a whisker of a 5-1/2-year trough, the Chinese yuan edged up a touch to 6.5786 yuan per dollar in the onshore market.

(Additional reporting by Masayuki Kitano in Singapore; Editing by Gareth Jones)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.