US dollar back towards one-month low

London

THE US dollar lurched lower on Monday, back towards the one-month lows hit last week when it became clear the Fed was in no hurry to tighten policy and policymakers broadly shared Fed chairman Jerome Powell's view that rate rises were "a ways away".

Data from the US Commodity Futures Trading Commission shows speculators rowed back into the US dollar in the week till July 27, with net US dollar longs at US$3.56 billion, the largest since last March. However, that was before the outcome of the Federal Reserve meeting where the message was unequivocally dovish.

The US dollar index eased 0.15 per cent to 91.97 by 7.30pm Monday, Singapore time, just off Friday's one-month low of 91.775. The index dropped 0.88 per cent last week, its worst since early-May.

Earlier in July, it touched a 3½-month high at 93.194 as traders had positioned for a speedy start to tapering.

Societe Generale strategist Kenneth Broux expects the US dollar to trade in a range until the Fed's Jackson Hole summit where the Fed may signal the timing to start winding down stimulus.

"The (US) dollar has had a very good few weeks and we are up 4 per cent from the lows so some consolidation is in order," he said.

Markets await the July non-farm payrolls report, due on Friday, the last big jobs release before Jackson Hole. A Reuters poll forecast a 926,000 increase, the biggest for 11 months.

Mr Broux said, however, while there could be "a bit of noise around the payrolls, in August it's all about (thin) liquidity and what message China will send".

He was referring to Beijing's crackdowns on a range of sectors, which have caused outflows from Chinese stocks and spillovers worldwide. It also helped to push the yuan to three month lows against the US dollar.

While markets have since steadied and the yuan recovered to around 6.46, China's central bank pledged over the weekend to maintain a prudent, flexible and targeted monetary policy, a sign of more easing to come. Data showed Chinese factory activity growth slowed in July.

The euro showed little reaction to a purchasing managers index (PMI) reading of July manufacturing at 62.8, a touch above the "flash" number of 62.6. It firmed 0.16 per cent at US$1.1885 having last week risen as high as US$1.1909.

The Aussie was up slightly at US$0.7359. REUTERS