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London - A gauge of the dollar held near the lowest level in more than a week before reports predicted to show declines in US producer prices and consumer sentiment that may amplify doubts the Federal Reserve will increase interest rates next week.
The US currency has fallen against 13 of its 16 major peers this week as economists are split over whether policy makers will alter the benchmark on September 17, while fed fund futures indicate a less-than-one-third chance of a move.
Central-bank policy dominated currency-market dynamics as Australia’s dollar headed for its biggest weekly advance in more than a year, with traders reducing bets the Reserve Bank of Australia will cut its cash rate by year-end.
“Markets are pricing in slightly less chance of a Fed hike, even than they were a week ago and that mood will probably carry over into foreign exchange,” said Imre Speizer, a senior market strategist at Westpac Banking in Auckland.
“There won’t be much appetite to go long the US dollar at this point,” he said, referring to wagers the greenback will appreciate.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1 206.64 as of 11:18. The gauge was headed for a 0.6% drop since September 4, its first slide in three weeks. The index touched 1 204.18 on Thursday, the lowest since September 1.
The greenback was little changed at $1.1275 per euro, 1.1% weaker on the week. It was little changed at ¥120.63, set for a weekly gain of 1.4%.
Biggest losers
The dollar’s decline marks a reversal of fortune as investors question the outlook for higher interest rates. The currency had climbed against most of its major peers during the past three months in anticipation of a Fed liftoff, with Brazil’s real, the New Zealand dollar and the rand the biggest losers.
Speculation the Bank of Japan will expand monetary easing next month helped push the yen down the most among the 10 developed-nation currencies over the past week.
Eleven of 35 respondents see the BOJ stepping up its easing on October 30, while two forecast a move as early as next week, a September 7 to September 10 survey shows.
“Markets are starting to price in expectations for more easing from the BOJ,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. “Dollar-buying is restrained as markets pare back the probability of the Fed raising rates next week.”
Fed liftoff
Futures show a 28% chance the Federal Open Market Committee will announce the first rate increase since 2006 when it meets next week. The odds were 30% a week ago and 38% on August 31, with the calculation based on the assumption that the effective fed funds rate will average 0.375% after the first increase.
The central bank has held its short- term rate target at virtually zero since December 2008.
The University of Michigan consumer-sentiment index declined to 91.1 in September from 91.9 the prior month, according to a Bloomberg survey of economists before the data is published Friday. The producer-price index fell 0.1% in August from the prior month, a separate survey shows.
In Australia, the most accurate forecaster of RBA decisions this year, Nomura Holdings, is pushing back its expectations for another rate cut until next year. The Australian dollar fell 0.2% on Friday to 70.46 US cents. That cut its weekly gain to 2.2%, still the most since February 2014.
