The dollar recouped some of its overnight losses on Thursday, bouncing back against the yen but losing further ground against the euro and the Australian dollar, amid increasing expectations that the Federal Reserve may wait longer before it starts raising short-term rates.
Around 0450 GMT, the greenback was at Y119.00, compared with Y118.86 late Wednesday in New York. A set of downbeat U.S. economic indicators overnight, including retail sales and Wal-Mart Stores Inc.’s guidance, sent the dollar into tailspin across the board. The U.S. currency hit Y118.61 overnight, its lowest level since Sept. 4.
The dollar, however, strengthened against the yen in early Asian morning trade on dip-buying from Japanese importers and institutional investors. In addition, the stock market’s relative solid performance induced selling of the yen, considered as a safe haven. The Nikkei gained 1.3% midday.
“We see expectations rise yet again that (the Federal Reserve) will be unable to act within this year,” said Shusuke Yamada, chief FX strategist at Merrill Lynch Japan, adding that U.S. growth is considerably biased downward as depicted in flagging U.S. retail data.
Investors are now seeing a tug-of-war between yen buying on risk aversion and yen selling on speculation about possible action by the Bank of Japan to ease its monetary grip at the Oct. 30 policy meeting, said Mr. Yamada.
But it remains uncertain if the dollar can maintain its gains later into the global trading day with the possibility of inflation data in the U.S. triggering another round of dollar selling.
Fed-funds futures, used by investors and traders to place bets on central bank policy, showed Wednesday that they see a 5% likelihood of a rate increase at the Fed’s Oct. 27-28 policy meeting, according to data from CME Group. The odds were 30% for the December policy meeting, down from 35% Tuesday.
Amid broader dollar selling, the U.S. dollar was weaker against the euro, which gained to $1.1479 midday from $1.1474 late Wednesday. Having cleared overnight technical resistance of 1.1460, its high set on Sept. 18, investors have found it easier to seek the pair’s upside amid broader dollar selling.
The euro was at Y136.58 from Y136.34.
The U.S. dollar also weakened against the Australian dollar, which rose to $0.7311 from $0.7300. But the Aussie’s upside was capped due to weaker-than-expected labor data in Australia released earlier in the session that showed the number of people employed in September fell by 5,100 from August, compared with an expected 10,500 rise.
The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was down 0.04% at 86.59.