The dollar crawled up on Monday after recording its poorest weekly performance in three months, while the yen edged lower after a more than 3 percent surge on a much less aggressive than expected easing package from the Bank of Japan.
The greenback shed 2 percent last week against a basket of major currencies .DXY after the U.S. Federal Reserve gave no hints of any near-term interest rate rise as some had expected it to, and after a disappointing set of U.S. growth data at the end of the week.
It could manage just a 0.2 percent rise on Monday, to 95.672, leaving it close to the 3-1/2-week low of 95.384 hit on Friday.
U.S. gross domestic product grew at an annual 1.2 percent in April-June, falling far short of the 2.6 percent increase that had been forecast. But strategists said this week’s data, which includes the closely watched monthly non-farm payrolls report on Friday, could boost the U.S. currency.
“We’re expecting the U.S. data flow to be very supportive of U.S. yields and the dollar,” said BNP Paribas currency strategist Sam Lynton-Brown, in London.
“Our interpretation of the July statement from the FOMC (Federal Open Market Committee) was that if data continues to remain very strong then September looks well underpriced by the market,” added Lynton-Brown.
New York Fed President William Dudley said at a central bankers’ conference in Bali on Monday that the Fed could hike rates before the November U.S. election if the economy and labor market improve quickly, although he added the Fed should be cautious.
The dollar had been rallying before last week, posting five weeks of consecutive gains – its strongest run in 1-1/2 years. The weaker-than-expected GDP report followed a strong payrolls report for June, as well as improving inflation, retail sales and jobless claims data.
In response, speculators raised their bullish U.S. dollar bets to the highest level in nearly five months in the week up to last Tuesday, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.[IMM/FX]
The dollar gained half a percent on Monday to 102.54 yen JPY=, having fallen more than 3 percent on Friday.
The BOJ disappointed market hopes that it might increase its already huge bond-buying program or take interest rates further into negative territory. Instead, it increased its purchase of exchange-traded funds and left rates unchanged.
“Last week the BOJ showed restraint once again, and as a result dollar/yen has since eased back to 102,” wrote Commerzbank strategists in a note to clients. “The outlook that may now be justified is likely to depend largely on fiscal policy measures the Japanese cabinet is going to decide on tomorrow.”