US dollar nurses losses after hit from downbeat GDP report

[TOKYO] The dollar on Monday pulled away from lows it hit following disappointing US growth figures late last week while the yen pared some its large gains made after the Bank of Japan's smaller-than-expected stimulus steps.

The dollar index, which tracks the greenback against a basket of six rival currencies, was up 0.1 per cent at 95.654, crawling away from its Friday low of 95.384, its lowest since July 5.

US gross domestic product increased at a 1.2 per cent annual rate in April-June, Commerce Department figures showed on Friday, falling far short of the 2.6 per cent increase forecast by economists polled by Reuters.

"The US dollar advance was stopped in its tracks by the disappointingly weak Q2 GDP figures," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said in a note.

The dollar index's next immediate technical target is 94.75, he said, as market speculation of a near-term interest rate hike continue to fade.

"The FOMC statement earlier in the week did not leave the impression that a September hike was likely, and with the poor growth numbers, the odds were downgraded further," Mr Chandler said.

Dallas Fed President Robert Kaplan told reporters after the GDP release that the Fed should not overreact to Friday's weaker-than-expected growth report, but needs to consider more data before contemplating another interest rate increase.

Interest rate futures implied traders saw a 33 per cent chance on Friday that the Fed would raise rates by year-end, down from 43 per cent on Thursday, CME Group's FedWatch gauge showed.

The weaker-than-expected GDP report followed a strong US non-farm payrolls report for June, as well as improving inflation, retail sales and jobless claims data, that had prompted many investors to increase their dollar positions.

Speculators raised their bullish US dollar bets to the highest level in nearly five months, with the value of the dollar's net long position increasing to US$13.66 billion in the week ended July 26 from US$10.42 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The nonfarm payrolls report for July will be released on Friday. Economists polled by Reuters project a gain of 175,000 jobs, down from June's 287,000 increase.

The unemployment rate is seen holding steady at 4.9 per cent.

Against its Japanese counterpart, the dollar added 0.3 per cent to 102.36 yen, after whipsaw trading in Friday's session in which it ranged from a low of 101.97 to a high of 105.75. The euro rose 0.2 per cent to 114.27 yen.

The BOJ disappointed market hopes on Friday that it might increase its already massive buying of Japanese government bonds or take already negative interest rates lower. Instead, it increased its purchase of exchange-traded funds to 6 trillion yen (S$78.7 billion) and kept interest rates at minus 0.1 per cent, leading some strategists and investors to conclude that policymakers are running out of options.

The euro was steady at US$1.1173 while sterling was little changed at US$1.3220, with investors focused on the Bank of England's decision on Thursday.

A Reuters poll of economists published last week predicted the British central bank would cut its benchmark bank rate for the first time since 2009 to 0.25 per cent from 0.50 per cent, but most said it would not revive its massive bond-buying programme for now.

REUTERS