US Dollar rises against safe-haven yen as focus turns to Fed
New York (July 28) The dollar rose from a two-week low against the yen on Tuesday, as investors brushed off China's stock market rout and focused instead on the possibility of a 2015 U.S. interest rate rike ahead of the start of a Federal Reserve meeting.
The safe-haven Japanese currency had gained on Monday as Shanghai stocks tumbled 8.5 percent - their biggest one-day drop in eight years - and commodity prices slid, dragging down European and U.S. shares and dampening demand for the dollar as investors worried about global growth.
But although Chinese equities fell again on Tuesday, the decline was more modest, while broader share markets managed to edge up as investors took on more risk.
The dollar gained a third of a percent to 123.66 yen JPY=, up from its low of 123.01 yen on Monday.
The Fed starts a two-day policy meeting on Tuesday, with a statement due on Wednesday. Some investors expect it to signal that rates will rise as soon as September, while others say slowing growth in China and persistently weak commodity prices will see the central bank hold off until next year.
"We're in for a little bit of a wait now that we have just over 24 hours to go until the Fed," BMO Capital Markets' European head of FX strategy, Stephen Gallo, said.
"Yesterday's move in the dollar is a symptom of people not wanting to be over-exposed to the dollar and the fact that the Fed might not be as hawkish... The long dollar trade is to a degree a risk-on trade."
The dollar index, which tracks the U.S. unit against a basket of six major rivals, rose 0.3 percent to 96.774 .DXY, after falling to a two-week low of 96.288 on Monday. Against the euro, it was 0.3 percent up at $1.1059 EUR=.
"We think FOMC will surprise on the hawkish side, provided a highly conditional lean to a 2015 lift-off is viewed as hawkish," CitiFX's global head of G10 FX strategy, Steven Englander, wrote in a note to clients.
After this week's Fed meeting, the next big event for the dollar will be second-quarter U.S. gross domestic product data on Thursday. The economy is seen returning to growth after a contraction in a weather-hit first three months.
With UK growth data due at 0830 GMT, sterling edged down 0.2 percent to $1.5532 GBP=D4.
Source: Reuters
