Dollar takes breather,
markets ponder near-term Fed rate view
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[October 18, 2016]
TOKYO
(Reuters) - The dollar took a breather from its recent gains on Tuesday,
edging away from seven-month highs against a currency basket as
investors took stock of U.S. interest rate expectations in coming
months.
The dollar index, which tracks the greenback against six major rivals,
slipped 0.2 percent to 97.711, after rising as high as 98.169 in the
previous session, its highest since March 10.
Against the yen, the dollar was down slightly on the day at 103.89 <JPY=>.
"Rangebound trading continues, with the 104 level heavy for the
dollar-yen," said Kaneo Ogino, director at foreign exchange research
firm Global-info Co in Tokyo. "It's just short-term guys, playing in the
market."
U.S. interest rates remain a key focus of the markets, he said, with a
December rate hike still anticipated.
However, a Fed rate increase this year is still far from a done deal.
Fed Vice Chairman Stanley Fischer said on Monday that economic stability
could be threatened by low interest rates, but it was "not that simple"
for the Fed to hike.
However, Boston Fed President Eric Rosengren told Reuters the current
levels of jobs and inflation support the case for a rate increase soon.
A suggestion by Fed Chair Janet Yellen on Friday that the central bank
may allow inflation to exceed its 2 percent target pushed U.S. bond
yields to four-month highs and gave the dollar a lift.
The Bank of Japan will meet later this month and issue fresh quarterly
growth and inflation forecasts at the end of its Oct. 31-Nov. 1 meeting,
but it is seen holding off on expanding stimulus after having just
revamped its policy framework.
"The BOJ is not expected to move in the next two or three months, so I
don't think their movement is going to be a topic soon," said IHS
Markit's principal economist in Tokyo, Harumi Taguchi.
Japanese companies have little faith in the central bank's latest shift
in monetary policy, saying it won't generate long-desired inflation,
spur further business investment or have an impact on the economy,
according to the findings of the Reuters Corporate Survey released on
Tuesday.
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The
euro added 0.2 percent to $1.1017, moving away from a nearly three-month low of
$1.0962 hit on Monday, as investors looked ahead to the European Central Bank's
policy meeting later this week.
The ECB may discuss technical changes that would allow it to extend its 1.7
trillion-euro of asset purchases beyond the March 2017 end-date, at a time when
talk of potentially "tapering" its scheme has put markets on edge.
Against the yen, the euro climbed 0.2 percent to 114.47.
Recently battered sterling added 0.3 percent to $1.2220.
Prime Minister Theresa May is keen to listen to "differing views" among her team
of top ministers to make sure Britain is fully prepared for its negotiation to
leave the European Union, her spokeswoman said on Monday.
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Fears
that May is taking Britain towards a "hard Brexit," which could see it leave the
EU's single market in order to impose controls on immigration, have pressured
sterling.
The weaker currency has sent inflation expectations soaring, driving investors
to trim bets on Bank of England stimulus measures this year.
The Australian dollar gained 0.5 percent to $0.7665 <AUD=>, getting a tailwind
from its U.S. counterpart's weakness and from Reserve Bank of Australia Governor
Philip Lowe, who said he was comfortable with the current exchange rate.
Earlier in the day, Australia's central bank said coming data on inflation and
employment will be critical for interest rates at its next meeting on Nov. 1,
opening the door to a possible easing in policy. But market participants believe
chances of an easing are remote.
(Reporting by Tokyo markets team; Editing by Shri Navaratnam and Kim Coghill
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