By Kevin Buckland and Netty Ismail
The dollar was near its weakest level in a month after traders pushed back expectations for a Federal Reserve interest-rate increase until September next year.
The Bloomberg Dollar Spot Index was little changed following a 1.7 percent slide last week, its biggest since April, after an official report showed second-quarter US gross domestic product expanded at less than half the rate economists had forecast. Morgan Stanley warned the worst is still to come for the greenback as the economy deteriorates further. The won and the ringgit each rose at least 1 percent Monday with the South Korean currency touching the strongest since June 2015.
“The GDP was a massive miss, so I’m not surprised by the huge dollar selloff that ensued,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “The immediate risk at the moment is for a bit of further weakness in the US dollar on the moderated monetary tightening view.”
The dollar’s gauge rose less than 0.1 percent at 7:32 a.m. in London from Friday, when it slid 1.3 percent and touched the lowest level since July 1. The US currency advanced 0.1 percent to $1.1164 per euro. The greenback rose 0.4 percent to 102.50 yen, after tumbling 3.1 percent in the previous session. The US currency has dropped at least 0.6 percent against 16 major peers since Thursday.
The Bank of Japan said Friday it will almost double its annual exchange-traded fund purchases to 6 trillion yen ($59 billion), while leaving bond buying and its negative deposit rate unchanged. Prime Minister Shinzo Abe is due to unveil a 28 trillion yen fiscal stimulus package Tuesday. That plan will now shoulder the main burden of stoking expectations for growth and inflation.
“Dollar-yen is rebounding after being sold off too aggressively,” said Takuya Kanda, a senior researcher at Gaitame.com Research Institute Ltd. “But, if upcoming data strengthens the scenario where a rate increase next month isn’t possible, dollar-yen could break 100 this week.”
Futures signal 36 percent odds of higher US rates by year-end, down from a 48 percent probability a week ago. The first month where traders see better than even odds for an increase has been pushed back to September 2017 from March.
Investors are underestimating how many times the US central bank will raise interest rates this year and next, but they are probably right about the pace being slower than previously thought, Federal Reserve Bank of New York President William Dudley said. “It is premature to rule out further monetary policy tightening this year,” he said in remarks prepared for a speech Monday at a conference in Bali.
The dollar tumbled 1.2 percent to 4.0232 ringgit, set for its biggest drop since March 30. It slid 1.1 percent to 1,108.18 won, after weakening to 1,108.05 won.
“A lot of the G-4 currencies are at negative yields,” said Kelvin Tay, regional chief investment officer at UBS Group AG’s wealth management business in Singapore, referring to the Group of Four. “That means that the emerging-market currencies, especially the higher yielding ones, will be more attractive.”
