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US dollar retreats in Asia ahead of Fed, BoJ meet

[SINGAPORE] The US dollar eased in Asia Monday after last week's pick-up as investors await crucial policy meetings at the Federal Reserve and Bank of Japan later this week.

The greenback rose Friday after the release of higher-than-forecast US inflation for August strengthened the case for a US interest rate hike.

But a series of below-part readings on the economy, including jobs creation and factory activity, have fuelled speculation the central bank will stop short of tightening borrowing costs, which has in turn kept the US dollar in check.

"Forex markets are going to be all about central banks this week," said Greg McKenna, chief market strategist at Australia-based retail forex broker AxiTrader.

"We expect the Fed to stay on pat this week," Singapore's United Overseas Bank (UOB) said in a note, adding however it expects a 25 basis points increase when policymakers meet next on December 13 and 14.

The Fed's decision will come hours after the BoJ wraps up its own meeting. Reports last week said Japanese policymakers are discussing cutting interest rates deeper into negative territory as they struggle to kickstart inflation and economic growth.

In Singapore Monday afternoon the US dollar was at 102.05 yen from 102.27 yen in late New York trade Friday.

Japanese financial markets are closed Monday for a holiday.

The euro was changing hands at US$1.1168, up from US$1.1156, while the single currency dipped to 113.96 yen from 114.09 yen.

The greenback was also down against most other Asia-Pacific currencies, easing 0.6 per cent against the Australian dollar and 0.5 per cent against the New Zealand dollar.

South Korea's won gained 0.3 per cent, the Indonesian rupiah added 0.1 per cent and the Singapore dollar put on 0.2 per cent.

Lee Boon Keng, associate professor for banking and finance at the Nanyang Business School in Singapore, called on the Fed to act on rates soon in order to save its credibility.

"The upcoming ... meeting is the most critical one this year, not merely because it will affect the Fed's credibility, which to say the least it already hardly has much," he said.

"It is more about the leadership it is on the verge of losing because it does not have the gumption to raise interest rate, yet again, this week.

"As a central bank of the largest economy in the world, if the Fed says that it has no clue how to lead, then surely the market will take over. And guess what the financial market thrives on? Volatility."