(Reuters) - The dollar dropped for a third session against the yen on Tuesday, hitting a six-week low, as the greenback continued to be weighed by lowered expectations that the Federal Reserve would start reducing its bond purchases in the near term.
The U.S. currency has been weakening in the aftermath of
below-forecast U.S. jobs data last Friday that prompted some analysts to push
back expectations of when the Fed would begin slowing its bond-buying stimulus
of $85 billion per month.
The Fed's asset-purchase program, called
quantitative easing, is negative for the dollar as it is tantamount to printing
Expectations that the Bank of Japan, at its monthly policy
meeting this week, will refrain from embarking on more stimulus measures also
favored the yen.
"While the weakness of the dollar is pronounced against
the yen, it is a broad sell-off that has more to do with Fed policy than BoJ
policy," said Charles St-Arnaud, foreign exchange strategist at Nomura
Securities in New York.
"This is symptomatic of how trading has been all
summer, with so much volatility and people looking to lock in profits whenever
they can," he said.
The dollar fell as low as 97.51 yen, its lowest
since June 26. It last traded down 0.6 percent at 97.74 yen.
The Bank of
Japan's next policy meeting is on Wednesday and Thursday, and BofA Merrill
Lynch, in a global research report, said they do not expect it to make any
changes to its policy framework.
The BoJ might need to consider
additional easing if downside risks increase for the economic growth and
inflation outlook, if doubts arise about the effects of its quantitative and
qualitative easing, and if overseas economies falter and the yen appreciate, the
The euro, meanwhile, gained against the U.S. dollar on
Tuesday on news of a surge in factory output in Britain and Germany, extending a
string of recent upbeat data that perhaps points to an early end to the euro
zone's 18-month recession.
While the euro zone single currency was
buoyed by strong growth at factories in Germany - Europe's largest economy - and
in Britain - the euro zone's biggest trade partner, most analysts believe the
region significantly lags the kind of recovery under way in the United States.
The euro rose as high as $1.3323 and last traded at $1.3304, up 0.4
percent on the day.
The dollar briefly pared losses versus the yen and
euro after data showed the U.S. trade deficit narrowed sharply in June to its
lowest in more than 3-1/2 years as imports reversed the prior month's spike,
suggesting an upward revision to second-quarter economic growth.
dollar index was down 0.2 percent on the day at 81.687, according to Reuters
The Australian dollar, meanwhile, also rose against the dollar,
gaining after the Reserve Bank ofAustralia cut interest rates as expected and
gave no clear indication it would ease policy further, disappointing some who
had positioned for it.
The RBA lowered its cash rate by a quarter
percentage point to a record low of 2.5 percent, a cut which was fully factored
in. Some had geared up for a 50-basis-point cut and some form of forward
guidance or pledge to keep rates low, analysts said.
A squeeze in short
positions saw the Australian dollar rise 0.7 percent to $0.9006, pulling away
from a three-year low of $0.8848 struck on Monday. It has risen for two days and
was on track for its best daily performance in two weeks.
Aussie last traded at $0.8962, up 0.4 percent on the day, some view the Aussie's
gains as temporary.
The Aussie is likely to be pressured in the medium
term by slowing growth in China as well as a strengthening U.S. dollar, Valentin
Marinov, G10 currency strategist at Citi told the Global MarketsForum, a Reuters
In the very near term though, he said, the Aussie
could squeeze a bit higher. That was primarily because plenty of investors and
speculators had built large bets against the currency and needed to book
profits, analysts said.