Dollar Weakens for Second Day on Fed Interest-Rate Move Doubt

Updated on
  • Yen gains before Bank of Japan policy meeting on Tuesday
  • Volatility remains near 7-month high as central banks watched

The dollar weakened past 120 per yen amid speculation the Federal Reserve will refrain from increasing its benchmark interest rate this week.

A gauge of the greenback reached a two-week low before the Federal Open Market Committee’s rate-setting meeting Sept. 16-17. U.S. consumer prices fell in August from a month earlier, according to economists’ estimates before data due Sept. 16. The yen strengthened as all except two of 35 analysts surveyed by Bloomberg predicted the Bank of Japan will maintain its policy stance at its meeting Tuesday.

"We obviously don’t know what’s going to happen and I think that maybe makes it a bit difficult for people to position themselves too aggressively," said Steven Barrow, head of Group-of-10 strategy at Standard Bank Group Ltd. in London. "I’m not quite sure how the dollar would respond even if you told me now what’s going to happen."

The greenback fell 0.3 percent to 120.23 yen at 5 p.m New York time, after reaching as low as 119.85. The Japanese currency appreciated 0.5 percent to 136.07 against the euro. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.1 percent to 1,202.87 after reaching the weakest level since Sept. 1.

Fed Chance

Volatility in foreign exchange markets remains near a seven-month high, according to JPMorgan Chase & Co.’s gauge of price swings in currencies.

Futures show a 26 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 “liftoff 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.

“We’re probably going to run in small, inconclusive ranges all day today and in the run-up until Thursday,” said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. “You’re not going to see anything decisive in the currency markets until this Fed meeting.”

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.

The yen has climbed 6.9 percent in the past three months, the most among its peers in Bloomberg Correlation-Weighted Indexes, as equity markets fell and concern deepened about slowing global growth. The euro advanced 4.2 percent in the period, while the dollar has climbed 3.8 percent.

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