XM Investment Research Desk: The US dollar stabilized in Asian trading on Wednesday following another steep fall yesterday on growing doubts about the prospect of further rate increases by the Fed this year. The greenback hit a 3-week low of 100.67 yen yesterday but managed to rebound above the 101 level in today’s Asian session.
The euro and the pound were also stuck near 3-week lows against the yen at 113.40 and 134.65 respectively.
The Japanese currency continued to face upside pressure today due to increased risk aversion. But talk that the Bank of Japan may be considering curtailing its massive bond buying program also lifted the yen while dampening market sentiment.
The approval by Japan’s cabinet yesterday of the government’s fiscal stimulus package and the Bank of Japan’s statement last week that it is re-evaluating its policies led some analysts to start speculating that the BoJ may start to retreat from its quantitative easing program due to its ineffectiveness.
Meanwhile, the dollar found minimal support from stronger-than-expected personal consumption data from yesterday as well as remarks from Atlanta Fed President Dennis Lockhart. Speaking on CNBC on Tuesday, Lockhart said it was too early to rule out a September rate hike.
This did little to help the greenback as the euro rose to a six-week high of 1.1233 dollars and even the battered pound managed climb to multi-week highs, breaking above 1.33 dollars.
The New Zealand dollar was down sharply today, reversing most of yesterday’s gains as it was hurt by weaker-than-expected labour cost data. Labour costs in New Zealand increased by less than expected in the second quarter, reaffirming expectations that the RBNZ will likely cut interest rates next week. The kiwi rallied to a 3-week high of 0.7255 against the US dollar yesterday as it was boosted by a sharp rise in dairy prices. However, it was down at 0.7186 after the data.
There were more mixed messages for China’s economy today as the Caixin services PMI fell in July, in contrast to the official PMI out on Monday that showed an improvement on the previous month. The services PMI according to the private Caixin survey declined from 52.7 in June to 51.7 in July. The data added to the overall risk-off sentiment in the markets today.
This kept the pressure on oil prices, which continued to drift lower today. WTI oil futures were down at $39.44 a barrel in late Asian session, not too far off from yesterday’s 3-month lows.
Coming up later in the day, the final services PMI for the Eurozone and the UK services PMI will be the main data in the European session, while in the US session, the ADP employment numbers and ISM non-manufacturing composite will be watched.