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The U.S. dollar sagged against the euro and the yen after
downbeat productivity data sapped some of the momentum it had
gained from last week's robust jobs report.
U.S. Treasury yields <US10YT=RR> fell after the productivity
report suggested the economy may not be growing as quickly as
anticipated, prompting investors to cut long-term inflation
expectations. According to CME's Fedwatch, investors have
trimmed chances of a rate rise in December 2016.
The dollar was down 0.6 percent at 101.28 yen <JPY=>, having
gone as high as 102.66 on Monday on the strong non-farm payrolls
data. The euro rose 0.5 percent to $1.1173 <EUR=>, touching a
5-day high of $1.1184.
The dollar index <.DXY> dropped 0.6 percent to 95.577.
"The release of the third consecutive decline in quarterly U.S.
productivity – the worst run since at least 1980 – does not bode
well for the prospects for the dollar," Morgan Stanley head of
currency strategy, Hans Redeker, said.
The Australian dollar advanced to a more than three-month peak
of $0.7729 <AUD=D4>, buoyed this week by Australia's relatively
high yields and stronger investor appetite for risk.
"Part of the Australian dollar's resilience is the lack of
follow-through in pricing for a Fed hike in September, limiting
the U.S. dollar's gains," analysts at Westpac said in a note.
They recommended investors to buy the Australian dollar.
The U.S. dollar's weakness also gave struggling sterling a lift.
The pound was up 0.5 percent at $1.3061 <GBP=D4>, recovering
from $1.2956 struck on Tuesday, its lowest since July 11.
The pound took a knock on Tuesday after Bank of England
policymaker Ian McCafferty said more monetary easing was likely
to be needed if the UK's economic decline worsened.
In European trade, attention briefly turned to the Norwegian
crown. The crown scaled its highest against the euro in more
than a month, after inflation rose more than expected in July,
sapping expectations of interest rate cuts in the near term from
the Norges Bank.
Data showed July core inflation rose to 3.7 percent from a year
ago, beating expectations of a 3.1 percent rise. For the month,
core inflation rose 0.7 percent.
The euro fell 0.8 percent to 9.2575 crowns <EURNOK=D4>, its
lowest since July 5, and down from around 9.33 beforehand.
Earlier, Nordea Markets said the Norwegian policy rate had
bottomed out at 0.50 percent and the central bank was no longer
expected to cut rates in September.
(Editing by Toby Chopra)
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