LONDON — The US dollar slipped to a near four-week low against a basket of currencies as prospects of the Federal Reserve keeping policy loose for longer increased after Lawrence Summers withdrew from the race for the next Fed chief.
Summers is perceived by markets as relatively hawkish and his decision could leave Janet Yellen, a well known policy dove, as front runner for the top job. President Barrack Obama has accepted Summers’ withdrawal.
The dollar index.
DXY was down 0,1% at 81,069, not far from the intra-day trough of 81.047, its lowest since August 21.
“We expected the dollar to be lower as we come towards the Fed meeting this week, the Summers’ announcement just intensified the dollar down move,” Adam Myers, senior FX strategist at Credit Agricole, said.
The euro was up 0,6% at 1,3370, having jumped to a two-and-a-half week high around $1,3383 earlier.
Myers said the pair could now target the August 20 high of $1,3453.
Against the yen, the dollar was down 0,6% at 98,75 yen, close to the day’s low of 98,45 yen which was the lowest since September 2.
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The news of Summers’ withdrawal also capped the recent rise in US 10-year Treasury yields, which were last at 2,8162%, some way off the 3,007% hit on September 6, which was a more than two-year high.
The dollar was already under pressure on recent disappointing US economic data and as markets positioned for the Fed to scale back its massive $85 billion monthly bond-buying stimulus by a modest $10 billion later this week, following the September 17-18 meeting.
“The expectation, and hope, is for a dovish outcome,” Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said. Risky assets could take a hit if the Fed were to taper its stimulus by a larger than expected amount, such as by $20 billion or more, Okagawa added.
Credit Agricole’s Myers said that if the Fed trimmed by a slightly larger than expected $15 billion, the dollar could get an initial knee-jerk boost, but the central bank might have a firm forward guidance message which could drag the dollar lower. Reuters
