Dollar slips from 2 1/2-month highs, awaits data for Fed hike bets

[October 29, 2015]  By Anirban Nag

LONDON (Reuters) - The dollar eased from its highest level in more than two months on Thursday, with investors awaiting U.S. growth and jobs data for more evidence on whether the Federal Reserve would start to raise interest rates by year end.

Recent soft U.S. data has left many doubting rates will rise soon. That lends added weight to data releases in coming weeks, starting with an advance reading of U.S. GDP due later on Thursday.

Economists expect U.S. manufacturing to show its first contraction in 2 1/2 years on Monday <USPMI=ECI>, arguing against a rate increase. Next Friday, the U.S. non-farm payrolls report will give clues about the labor market and whether wages are rising fast enough for the Fed to start tightening.

With all the uncertainty after the Fed's statement on Wednesday opened the door for a rate move, the dollar eased in European trade losing 0.4 percent to trade at 97.39.
 

The index had risen to 97.818 on Wednesday, its highest level since Aug. 10. A break above its Aug. 7 peak of 98.334 would bring the index out of its trading range of the past six months, opening the way for a test of the 12-year peak it hit earlier this year at 100.39. It last stood at 97.64.

"The market would still want to witness an acceptable GDP print today, along with non-farm payrolls and inflation data, before chances of a December rate hike moves from 50/50 to 70/30," said Tobias Davis, corporate hedging manager at Western Union Business Solutions.

On Wednesday, in a move that surprised many investors, the Fed strengthened its language about timing. It also took out a warning about slowing global growth, effectively rebutting earlier speculation that China's cooling economy would delay a rate increase in the United States.

As a result, money market futures <0#FF:> are pricing in about a 50 percent chance of a rate hike in December, compared with around 30 percent previously.

"The Fed will soon withdraw from the expansionary race. As a result, the dollar will appreciate, in particular versus the euro," said Antje Praefcke, currency analyst at Commerzbank.

On Thursday, though, the euro was 0.4 percent higher at $1.0965, after losing 1.2 percent on Wednesday. The euro was also helped by an unexpected improvement in euro zone economic sentiment and signs of faster-than-expected inflation in Germany.

The yen, which had fallen on Wednesday, recouped much of its losses after Japan's industrial production beat expectations. That reduced the chance the Bank of Japan would loosen policy soon. The dollar fell 0.2 percent to 120.80 yen.

(Additional reporting by Hideyuki Sano; Editing by Larry King)

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