The dollar fell against most of its major peers, with a gauge of the currency slipping from a three-week high, as traders awaited the Federal Reserve’s latest policy decision.
Weakness in emerging markets, which prompted the People’s Bank of China to lower its benchmark lending rate and helped lead the European Central Bank to indicate last week it would consider more stimulus measures, may mean the U.S. central bank will sound dovish when it comments in two days. This will weigh on the dollar, according to Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd.
“Fear of the Fed will take some of the shine off the dollar this week,” he said. “The focus will shift away from ECB and the PBOC to the Fed this week.” U.S. data “may disappoint to the downside,” which would further act as a drag on the currency, he said.
The Bloomberg Dollar Spot Index fell 0.2 percent to 1,209.28 as of 10:38 a.m. in London, after seven days of gains that saw it climb to its highest since Oct. 2 at the end of last week. The index tracks the U.S. currency against 10 major peers.
The dollar declined 0.4 percent to 121.04 yen, after rising 1.7 percent last week. The greenback slipped 0.2 percent to $1.1034 per euro, retreating from $1.0989, its strongest since Aug. 11. Reports from the U.S this week are forecast to show a decline in new home sales and an increase in the jobless claims numbers, according to Bloomberg surveys of economists.
The Fed will convene this week to discuss the possibility of raising its benchmark for the first time in almost a decade. Fed Governor Daniel Tarullo, who votes on rate decisions, said this month he didn’t favor an interest-rate increase in 2015 after several other officials signaled the central bank may still raise rates this year as long as the economy stays on track.
The probability the Fed will increase rates by its December meeting fell to 36 percent from 59 percent in early September, according to futures data compiled by Bloomberg. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.