TH: Dollar weaker as rate increase expectations pushed back
The dollar nursed losses on Monday, falling around 0.5% against the euro and slipping against a basket of currencies, after a weak US jobs report drove traders to push back expectations of a Federal Reserve rate hike to early 2016.
The euro's bounce, though, is likely to remain muted, with the European Central Bank likely to come under additional pressure to ease monetary policy in a bid to neutralise the impact on inflation from a firmer currency.
The dollar index, which tracks the greenback against a basket of six major currencies, slid to 95.218 on Friday, its lowest since September 21. It last stood at 95.560, down 0.3% on the day.
The euro was up at US$1.1270, drawing some support from the weekend elections in Portugal where results produced no surprises. The dollar was higher against the yen at 120.20 yen, moving away from Friday's low of 118.68 yen, its lowest since September 7.
"The US jobs data was a disappointment and postpones expectations of a lift-off by the end of this year which is not dollar positive," said Yujiro Goto, currency strategist at Nomura.
"At the same time, we expect the other major central banks like the Bank of Japan and the ECB to remain dovish. So the euro's rise above US$1.13 could be capped, while dollar/yen is likely to be supported at 120 yen."
The US nonfarm payrolls report showed employers added only 142,000 jobs last month, falling far short of economists' consensus expectation for a rise of 203,000 jobs, according to a Reuters poll. Moreover, the August figures were revised sharply lower while wages remained muted.
That raised doubts whether the US economy was strong enough to justify the Fed's long-awaited interest rate increase, which would be the first since 2006.
While the Fed is still expected to be the first major central bank to raise rates in the near future, uncertainty about the timing of this hike has kept the dollar locked in ranges.
In contrast to the Fed, some investors believe the Bank of Japan could unveil more easing steps perhaps as early as the conclusion of its next policy meeting on Wednesday, which has curbed the yen's upside.
Inflation has undershot in Japan and there has been speculation that the BoJ could downgrade its growth and economic forecasts this week, leaving the door open for more monetary easing later in October.
"We do not rule out any longer the possibility that the BoJ will intervene before year-end in the attempt to offset the cyclical downturn," said Matteo Germano, global head of multi-assets investments at Pioneer, adding the dollar will maintain a strengthening bias against the euro and the yen. – Reuters, October 5, 2015.
