Dollar on the defensive after more weak US economic data

The dollar started the week on the defensive on Monday after more disappointing US economic data reinforced expectations that the US Federal Reserve will not hike interest rates any time soon, while concerns about Greece’s debt talks pressured the euro.

The dollar was buying 118.93 yen, down about 0.1 per cent on the day and well below last week’s high of 120.10 yen touched on Thursday, and back towards its April low of 118.525 plumbed one week ago.

“I think the range-bound trading will be continuing for the dollar/yen, with the upside at 120 and the downside at 118,’’ said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

BoJ policy meet

The Bank of Japan will meet on Thursday, and is widely expected to hold policy steady. The policy decision, however, might be influenced by the median inflation forecast produced at the meeting.

While the possibility is slim, BoJ policymakers may opt to ease if the cut to this fiscal year’s inflation forecast is unexpectedly big, or if they feel the slowdown in inflation is damaging enough to warrant pre-emptive action.

Inflation is anticipated to reach barely half the rate that the BoJ expects for this fiscal year and next, a Reuters poll has found, emphasising the degree of difficulty seen in achieving the central bank’s price target.

Data on Friday showed US business investment spending plans fell for a seventh straight month in March, suggesting the economy was struggling to rebound.

FOMC meet

The data cemented the view that the US central bank will not send any imminent tightening signal after its two-day Federal Open Market Committee meeting scheduled to begin on Tuesday.

The weak figures sent the dollar index, which tracks the greenback against a basket of six major rivals, to a nearly three-week low of 96.755 on Friday. It stood at 96.985, edging up about 0.1 per cent on the day, due in part to a weaker euro.

“The US dollar finished the week on seemingly fragile footing. The question investors are asking is if the steady drum beat of disappointing US economic data turns the dollar’s bull case on its head,’’ Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, wrote in a note to clients.

“The Europe and Japanese side of the divergence have not changed, but the US side has,’’ Chandler said.

While the European Central Bank and the BoJ are still seen as maintaining ultra-easy monetary policy, market expectations for the US Federal Reserve’s contrasting interest rate increase have been pushed further down the road. Few investors now expect a rate hike in June, with most predicting a move later this year.

The Fed has kept overnight interest rates near zero since December 2008, and a recent spate of uninspiring data on retail sales, employment and housing starts suggests it will keep them there for at least several more months.

Data from the Commodity Futures Trading Commission and Thomson Reuters released on Friday showed that speculators reduced positive bets on the US dollar in the week ended April 21, pushing the currency’s net long position to its lowest since September.

The euro dropped about 0.2 per cent to $1.0855, well below Friday’s more than two-week high of $1.0900 hit on hopes of progress in Greece’s negotiations with the European Union and the International Monetary Fund creditors.

On Friday, euro zone finance ministers meeting in the Latvian capital of Riga warned Athens that it would get no fresh aid until it agreed to a complete economic reform plan.

As the country risks running out of cash within weeks, Greece’s governors and other local officials had agreed on Saturday to lend cash to the near-bankrupt central government after Prime Minister Alexis Tsipras assured them the measure would last for only a short period of time.

Tsipras and German Chancellor Angela Merkel had agreed in a phone conversation on Sunday to maintain contact during the ongoing debt talks, a Greek government official said.

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