TOKYO”•The dollar’s rally against the euro and yen hit a wall Monday, but it rose against other Asia-Pacific currencies on renewed speculation that the Federal Reserve will hike interest rates this month.
Greenback demand picked up Friday after Boston Fed President Eric Rosengren said higher rates were needed to prevent the economy from overheating, while normally dovish Governor Daniel Tarullo also signalled his openness to a 2016 rate hike.
“Rosengren’s comments were nothing new compared to remarks he’d made last month, but the fact they were repeated after the intervening US data run marked them out as significant,” National Australia Bank said in a commentary.
Their remarks came a day after the head of the European Central Bank played down the chances of fresh stimulus, while Japanese officials have kept markets guessing on the chances of new measures.
A string of weak readings for the world’s top economy—including service sectors activity and jobs growth—had put off expectations of any tightening until December at the earliest.
The yen gained as the Australian and New Zealand dollars held declines amid growing wariness over prospects the Federal Reserve will raise rates at this month’s meeting.
The yen gained 0.2 percent to 102.50 per dollar as of 6:49 a.m. in London, after strengthening as much as 0.4 percent.
The euro rose to $1.1242 against $1.1232 in New York, while it eased to 115.28 yen from 115.35 yen.
The won slid 1 percent to 1,110.57 per dollar, set for its biggest drop since Aug. 29 as a report North Korea is preparing for another nuclear test added to pressure on the currency.
A gauge of Asian shares dropped 2.1 percent, while Japan’s Nikkei 225 Stock Average retreated 1.9 percent.
The dollar gained 0.9 percent on the Malaysian ringgit and 0.6 percent versus the Indonesian rupiah.
Investors are now waiting for a speech later Monday by Lael Brainard, a dovish member of the Fed board, with speculation swirling that she will give yet another signal for a rate hike. Australia’s dollar fell 0.1 percent to 75.33 US cents, after tumbling 1.3 percent on Friday, its steepest drop in more than two months. New Zealand’s currency was little changed at 73.25 US cents from Friday when it dropped 1 percent, its biggest decline in five weeks.
“Traders have convinced themselves the Feds are marching out Lael Brainard, a mega-dove, to bang the Fed’s September rate hike drum,” said Stephen Innes, senior trader forex firm OANDA.
“While the Aussie and kiwi lost some ground Friday, they still remain close to recent highs,” said Robert Rennie, global head of foreign exchange and commodity strategy at Westpac Banking Corp. In Sydney. “Coming into the BoJ and Fed meetings I expect to see increased volatility and AUD underperforming,” even though the continuation of an accommodative stance from Japan and the European Central Bank will support the Aussie at its lower end, he wrote via electronic messaging.