Dollar slips versus most majors on Fed uncertainty

NEW YORK Tue Sep 10, 2013 1:34am IST

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NEW YORK (Reuters) - The dollar slipped against most major currencies on Monday after last week's disappointing U.S. jobs data fuelled uncertainty about whether the Federal Reserve will begin to taper its stimulus program this month.

The yen fell as Japanese stocks rallied following Tokyo's winning bid to host the 2020 Olympics and as Japanese second-quarter economic growth was revised up sharply. The yen and Japanese stocks have held a strong negative correlation this year.

Data Friday showing slower-than-expected U.S. job growth in August, even as the jobless rate hit a 4-1/2 year-low, continued to weigh on sentiment although the dollar did not undergo the mauling it took on Friday.

"We're still re-evaluating the nonfarm payrolls release on Friday," said Michael Woolfolk, global market strategist at BNY Mellon in New York. "But the market does appear to be taking this more in stride today and sentiment is the Fed will taper in September despite the sour report."

The euro rose 0.6 percent to $1.3258, also lifted by better-than-expected euro zone sentiment data. It hit a more than one-week high of $1.3280, according to Reuters data.

The dollar index, the dollar against a basket of six currencies, was down 0.4 percent at 81.803 on Monday, extending Friday's 0.6 percent drop .DXY.

Expectations the Fed would announce that it will begin to pare back its massive monthly bond purchases at its September 17-18 policy meeting have buoyed the dollar lately and are largely responsible for the 2.8 percent gain in the dollar index this year. A reduction in stimulus will lift U.S. Treasury yields and bolster the appeal of dollar-denominated assets.

Comments by two Federal Reserve officials suggested stimulus unwinding was still on track.

While the euro was supported by the positive Sentix sentiment data, investors were keeping a wary eye on Rome, where the Italian Senate is set to begin a debate on whether to expel former premier Silvio Berlusconi from parliament. If he is ousted, the move could threaten the country's ruling coalition.

A looming German general election was also keeping the euro in check.

"Volatility surrounding euro should pick up this week, as we approach the German elections and Italian politics grab market attention," Morgan Stanley said in a note. "Higher volatility and a central bank that stands ready to push back against higher rates should weaken euro, in our view."

OLYMPICS

The dollar gained 0.5 percent to 99.57 yen, having hit a high of 100.10 yen, according to Reuters data. The euro rose 1.1 percent to 132.02 yen.

The Olympics win for Tokyo could translate into a big boost for the Japanese economy and a shot in the arm for Prime Minister Shinzo Abe, who is attempting to reflate the economy after decades of sub-par growth and deflation.

The Tokyo bid committee estimated that hosting the Olympics would boost the economy by 3 trillion yen ($30 billion) over the next seven years. This boosted the Nikkei .N225, which jumped to a five-week high.

The yen is a safe-haven currency and tends to move in the opposite direction to riskier assets like stocks. Japanese stocks were also helped by a sharp upward revision of second-quarter Japanese economic growth data.

Some analysts said the yen's weakness could be temporary with investors wary of a possible U.S.-led military strike against Syria that could lead to fresh safe-haven inflows.

The Australian dollar hit a six-week high at $0.9224, benefiting from Chinese trade data. China is Australia's biggest export market. The Aussie last stood at $0.9233, up 0.6 percent.

(Reporting by Nick Olivari and Wanfeng Zhou; Editing by James Dalgleish)

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