Dollar
languishes near three-week lows on Fed questionmarks
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[October 12, 2015]
By Patrick Graham
LONDON (Reuters) - The dollar hovered near
a three-week low versus a basket of major currencies on Monday, anchored
by the doubts over the potential for a rise in U.S. interest rates this
year that have plagued it since August.
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Federal Reserve vice-chair Stanley Fischer was the latest to sound
mixed on the chances of a hike by December that markets had been
viewed as a certainty until worries grew over China and developed
economies' ability to stand a rise in dollar rates.
The retreat in Fed rhetoric has helped drive the U.S. currency
almost 10 cents lower against the euro from this year's highs. But
ironically its woes in the past week have as much to do with a
recovery for the same emerging markets at the root of the Fed's
concerns, as well as commodity price-linked currencies like the
Australian and New Zealand dollars.
"The MSCI Emerging Markets Index had a nearly 8 percent rally last
week - so the near-term outlook for select emerging markets and the
G10 currencies which are most positively correlated with risk
appetite looks okay," said Stephen Gallo, a strategist with Canadian
bank BMO in London.
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"We could get some further weakness in the dollar versus the euro
and yen but those two are mainly along for the ride. Most of the
weakness will be concentrated on emerging currencies."
The dollar index was down 0.1 percent on the day at 94.73, still
close to Friday's low of 94.692, its weakest level since Sept. 18.
The dollar edged down against the yen to 120.14 yen and was 0.1
percent lower against the euro at $1.1370, just off Friday's
three-week high of $1.13875.
President Mario Draghi underlined markets' belief that the European
Central Bank is concerned about the exchange rate by saying on
Friday it was ready to adjust the size, composition and duration of
its current trillion euro asset-purchase stimulus programme.
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That took the steam out of the euro's rally but big banks are now
split over its prospects. HSBC expects a rise to $1.18, JP Morgan
and Morgan Stanley see it steady for months to come, yet Barclays,
Deutsche Bank and Goldman Sachs all forecast a slide past parity
with the dollar next year.
Some analysts expressed surprise over the intensity of the past
week's rally in the commodity-linked currencies.
"I personally thought it would have stopped by now," said Teppei Ino,
an analyst for Bank of Tokyo-Mitsubishi UFJ. "This might end up
lasting until various products recover to their Aug. 11 levels, and
if that is the case, the Aussie could for example could rise to
around 74 U.S. cents," Ino said.
The Australian dollar gained another 0.3 percent to a seven-week
high of $0.7360. It gained 4 percent last week - its biggest weekly
gain since late 2011.
(Editing by Ruth Pitchford)
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