US dollar takes a beating after Summers withdraws from Fed race
SINGAPORE/SYDNEY (Sept 16) The US dollar fell to a near four-week low against a basket of major currencies on Monday as investors bet the US Federal Reserve (Fed) will keep monetary policy loose for longer after Lawrence Summers pulled out from the race to be the next Fed chief.
Summers is perceived by markets as relatively hawkish and his decision could leave Janet Yellen, a well known policy dove, as front runner for the top job. President Barrack Obama has accepted Summers' withdrawal.
The US dollar fell 0.4% against a basket of major currencies to 81.104. Earlier on Monday, the US dollar index touched lows not seen since Aug 21.
"It had been perceived that if Summers had come into the Fed, he'd have been more likely to remove US policy accommodation quicker," said Sam Tuck, currency strategist at ANZ in Auckland.
"Now that he's withdrawn his name there's speculation that policy accommodation withdrawal will take longer."
The euro jumped to a two-and-a-half week high around US$1.3383, from US$1.3300. It was last at US$1.3364, up 0.5% on the day.
Against the yen, the greenback initially slid to a two-week low of 98.45, falling nearly one yen from late New York on Friday. The US dollar later clawed back to 98.88 yen, still down 0.5% on the day.
The US dollar was already under pressure as markets positioned for the Fed to scale back its massive US$85 billion monthly bond-buying stimulus by a modest US$10 billion later this week, following the Sept 17-18 meeting.
"The expectation, and hope, is for a dovish outcome," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. Risky assets could take a hit if the Fed were to taper its stimulus by a larger than expected amount, such as by US$20 billion or more, Okagawa added.
The US dollar also lost ground against commodity currencies such as the Australian and New Zealand dollars.
The Aussie set a three-month high of US$0.9370, while the kiwi jumped to US$0.8234, reaching highs not seen since mid-May.
The Aussie dollar's rise stalled near resistance at US$0.9374, its 100-day moving average. After paring some of its gains, the Aussie stood at US$0.9333, up 0.9% from late US trade on Friday.
The New Zealand dollar was up 0.7% on the day at US$0.8193.
The news of Summers' withdrawal broke earlier in the Asian session, when market liquidity was very thin. Japanese markets are closed on Monday for a public holiday.
"It'll be crucial to see how the market plays out from here. I'd presume we stabilise for a little while," said Greg Gibbs, senior strategist at RBS in Singapore.
"But I wouldn't discount the significance of the news, it'd certainly filter through into stronger currencies in the region and we may even see Europe push the US dollar down even further." –
