Dollar
index slips, investors await guidance from Fed
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[August 28, 2015]
By Anirban Nag
LONDON (Reuters) - The dollar eased against
a basket of major currencies for the first time in four days on Friday,
with investors awaiting fresh comment from the U.S. Federal Reserve on
interest rates after a tumultuous week in global financial markets.
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The dollar had bounced back from seven-month lows struck on Monday
as a semblance of calm returned to markets, with the greenback also
benefiting from upbeat U.S. data.
The dollar index was down 0.1 percent at 95.514, off a one-week high
of 96.031 set on Thursday. Still, after diving to a seven-month
trough of 92.621 on Monday when global stock markets went into a
tailspin, the index has bounced more than 3 percent.
Against the yen, the greenback dipped below 121 yen, still a
remarkable recovery from Monday's seven-month low of 116.15. The yen
gave a muted reaction to data showing Japan's inflation slowed to
zero percent, its weakest in two years.
The euro was trading 0.3 percent higher at $1.1280, but well off its
lofty perch above $1.1700 reached on Monday when the sell-off in
global markets and worries about a Chinese slowdown led investors to
unwind euro-funded carry trades.
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The market is keenly awaiting comments on policy normalization from
Fed officials attending the Aug. 27-29 Jackson Hole Economic
Symposium. Expectations for a September move have eased after a few
Fed officials sounded a cautious note, citing the latest market
turmoil and China's slowdown.
"We'd expect the general tone to be one of caution despite the
evidence of U.S. economic strength," said Derek Halpenny, European
head for global market research at Bank of Tokyo Mitsubishi.
"It might take some time to judge whether the events in China were
an over-reaction or something more serious. Our internal valuation
estimates indicate euro/dollar overshot on the upside and is now
correcting back to levels consistent with traditional drivers of
spot rates."
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Data released on Thursday showed the U.S. economy grew faster than
initially thought in the second quarter, an outcome that kept the
chance of a U.S. interest rate hike this year on the table.
"Coupled with the stabilization in global risk appetite, the market
now again entertains the idea of a potential Fed rate hike this year
in December," said Petr Krpata, currency strategist at ING.
He said Friday's focus was on the August University of Michigan
Confidence index after influential Fed policymaker William Dudley's
reference to it earlier in the week.
In Europe, German inflation is set to remain low after data from the
country's states, or Laender, indicated price pressures were pretty
subdued.
That is likely to add to pressure on the European Central Bank to
either increase its asset buying program or extend it beyond
September 2016, a factor that is likely to weigh on the euro.
(Additional reporting by Hideyuki Sano in Tokyo; Editing by Gareth
Jones)
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