* Dollar index pulls back from Friday's 2-week high
* Pares gains made after stronger than expected U.S. CPI
* Focus on BOJ, Fed meetings on Sept 20-21
(Updates prices, adds comments)
By Masayuki Kitano
SINGAPORE, Sept 19 The dollar edged lower on
Monday, paring some of the gains made in the wake of strong U.S.
inflation data that bolstered bets the Federal Reserve will
raise interest rates this year.
The dollar index, which measures the greenback's
value against a basket of six major currencies, fell 0.2 percent
to 95.888. On Friday, it touched 96.108, its strongest
level since Sept. 1.
U.S. consumer prices rose more than expected in August, data
on Friday showed, pointing to a steady build-up of inflation
that could allow the Fed to raise interest rates this year.
U.S. short-term interest rate futures are now implying a 55
percent chance of the Fed raising interest rates by December,
compared to around 47 percent before the CPI data, according to
CME Group's FedWatch Tool.
The implied probability of the Fed raising interest rates at
its policy meeting this week remains low, at 12 percent.
It remains to be seen whether the U.S. central bank will
manage to raise interest rates by December without triggering a
bout of dollar strength, said Teppei Ino, an analyst for Bank of
Tokyo-Mitsubishi UFJ in Singapore.
"That will test its (the Fed's) skill and will hinge on how
they communicate," Ino said.
A rise in the dollar can increase disinflationary pressures
on the U.S. economy, a point touched upon recently by a Fed
Fed Governor Lael Brainard had said last Monday that low
interest rate policies across advanced economies could make the
United States more vulnerable to spikes in the value of the
dollar, which could put downward pressure on inflation.
The euro edged up 0.1 percent to $1.1166, having
touched a low of $1.1149 earlier on Monday, its lowest level
since Sept. 6.
The dollar eased 0.2 percent against the yen to 102.02
in holiday-thinned trading, as Japanese markets were
closed for a public holiday.
All eyes this week will be on the policy meetings by the Fed
and Bank of Japan on Sept. 20-21.
The BOJ is due to conduct a comprehensive review of its
current policy framework that combines negative interest rates
with a massive asset-buying programme.
Unless the BOJ surprises by adopting some form of radical
policy easing, the yen will probably strengthen after its
meeting, said Satoshi Okagawa, senior global markets analyst for
Sumitomo Mitsui Banking Corporation in Singapore.
"Unless they were to say that they will buy foreign bonds or
something like that, the yen will probably rise," Okagawa said.
The BOJ is seen as highly unlikely to resort to foreign bond
purchases, especially since the finance ministry has
jurisdiction over currency policy, meaning the BOJ cannot buy
foreign bonds in any way that influences exchange rate moves.
Sterling edged up 0.3 percent to $1.3038 on Monday,
getting a bit of reprieve after falling 1.8 percent on Friday.
With Britain's parliament back in session and focus
returning to the uncertainty surrounding the UK's negotiations
to leave the European Union as well as the prospect of further
easing by the Bank of England, sterling has retreated after
hitting a seven-week high of $1.3445 in early September.
(Reporting by Masayuki Kitano; Editing by Kim Coghill and