SD: Dollar Weakens for Third Day on Fed Interest Rate-Move Doubts
(Bloomberg) -- A gauge of the dollar declined for a third day amid speculation the Federal Reserve will refrain from lifting its benchmarkinterest rate this week.
The greenback earlier touched a two-week low against the euro and fell against most major peers last week as a report showed U.S. producer prices were little changed, underscoring the possibility that the world’s largest economy may not be ready for higher interest rates with China’s slowdown posing a risk to global growth.
Data due Sept. 16 will show consumer prices fell in August from a month earlier, according to economists’ estimates. The yen strengthened as all but two of 35 analysts surveyed by Bloomberg predicted the Bank of Japan will maintain its policy stance at its meeting Tuesday.
“What we’re seeing today is the dollar easing back because of more concerns about China,” said Neil Mellor, a senior foreign-exchange strategist at Bank of New York Mellon Corp. in London. “That feeds back into the Fed’s decision. Will they raise interest rates on the back of all this turbulence? More data is suggesting they will not.”
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, declined less than 0.1 percent to 1,203.84at 6:47 a.m New York time. The dollar gained 0.2 percent to $1.1317 per euro after touching $1.1373, the weakest since Aug. 26.
The greenback weakened 0.2 percent to 120.18 yen. The Japanese currency appreciated 0.4 percent to 136.16 against the euro.
Fed Chance
Futures show a 28 percent chance the Federal Open Market Committee will raise rates on Sept. 17. The probability was 38 percent on Aug. 31. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
The Fed will likely keep interest rates unchanged on Thursday and signal that “lift-off is near,”Goldman Sachs Group Inc. analysts, including Robin Brooks, the chief currency strategist in New York, wrote in a report dated Sept. 13. There is a risk that there will be a “dovish shift in the projections and, potentially, in the language” from Fed Chair Janet Yellen during the press conference, according to the report.
The U.S. consumer price index fell 0.1 percent in August after a 0.1 percent gain the month before, according to economists surveyed by Bloomberg before a Labor Department report on Sept. 16. That would be the first negative reading since January.
No Justification
“It’s hard to justify that a U.S. rate hike is the right move at this time,” said Derek Mumford, director at Rochford Capital Pty in Sydney. “There could be some squaring of positions prior to the decision and keep the U.S. dollar certainly from going higher.”
The yen has climbed 6.7 percent in the past three months, the most among its peers in Bloomberg Correlation-Weighted Indexes, as equity markets fell and concerndeepened about slowing global growth. The euro advanced 4.3 percent in the period, while the dollar has climbed 3.6 percent.
The BOJ will expand easing on Oct. 30, according to 11 economists in a Bloomberg survey conducted Sept. 7-10. Of the total respondents, 13 said they didn’t expect any new stimulus at all.
Hedge funds and other large speculators trimmed bets on yen weakness versus the dollar for a fourth period. The difference in the number of wagers on a drop compared with those on a gain -- net shorts-- was 6,662 on Sept. 8, from 15,555 a week earlier, according to data from the Washington-based Commodity Futures Trading Commission.
“What happens to the dollar in general if the Fed hike?” said Peter Frank, global head of Group-of-10 foreign-exchange strategy at Banco Bilbao Vizcaya Argentaria SA in London. “That is not clear to anybody, let’s face it. That’s why the speculative market has gone as flat as could be in crosses like dollar-yen.”
