Dollar weakens on views of dovish Fed after BoJ move, weak data

Mon Feb 1, 2016 3:27pm EST
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By Sam Forgione

NEW YORK (Reuters) - The U.S. dollar fell against a basket of major currencies on Monday on the view that the Federal Reserve would not be able to hike interest rates as quickly as forecast this year given weak U.S. economic data and continued easing from the Bank of Japan.

The dollar edged lower against the yen, hitting a session low of 120.670 yen JPY=EBS after shooting 2 percent higher against the Japanese currency on Friday to a six-week high of 121.700 after the BoJ's surprise shift to negative interest rates.

The euro rose against the dollar to a session high of $1.09130 EUR=EBS from Friday's low of $1.08100. Analysts said that the yen steadied against the dollar since the reaction from the BoJ's move had ended, while the euro gained mainly on expectations for a more dovish path of Fed rate hikes.

"The market is trending more dovish with regard to Fed expectations in general, which is having a bit of pressure on the dollar," said Sebastien Galy, currency strategist at Deutsche Bank in New York.

Galy said comments from Fed Vice Chairman Stanley Fischer Monday confirmed market participants' view that the Fed would proceed slowly in hiking rates. Fischer said the U.S. economy could suffer with inflation remaining too low if recent volatility in financial markets persists and signals a slowdown in the global economy.

The BoJ's move on Friday could forestall the Fed from hiking rates as quickly as they initially forecast, analysts said. Policymakers at the U.S. central bank indicated in December that they expected to hike rates four times this year.

Analysts said recently weak U.S. economic data had also added to the market's realization that the Fed would need to move more slowly, contributing to the dollar's weakness.

"The market is basically dismissing" the prospect of four Fed rate hikes this year, said Dean Popplewell, chief currency strategist at Oanda in Toronto.   Continued...

A U.S. one-hundred dollar bill (C) and Japanese 10,000 yen notes are spread in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano