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Forex News: U.S. Dollar Weakens On Fed Rate Hike Doubts

U.S. Dollar Weakens On Fed Rate Hike Doubts

09/06/2017 - 06:52:00 (RTTNews)

(RTTNews) - The U.S. dollar declined against its key counterparts in the European session on Wednesday, as dovish comments from Fed policymakers overnight rekindled doubts over the possibility for a third rate hike later this year.

The Fed Governor Brainard asserted that the US inflation is "well short" of the Fed's target and he would not support further tightening without signs of a pick up in inflation.

If inflation persistently falls short of the central bank's 2 per cent target, "it would be prudent to raise the federal funds rate more gradually," Brainard said in a speech at The Economic Club of New York.

Separately, Minneapolis Fed President Neel Kashkari suggested that the recent rate hikes may have hurt the US economy.

"It's very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations," Kashkari said at a speech at the University of Minnesota in Minneapolis.

Geopolitical worries on the back of North Korean nuclear crisis and the impact of Hurricane Irma, which is bearing down on the Caribbean islands and Florida, made investors nervous.

The European Central Bank meets on Thursday and it isn't entirely clear whether the central bank will send a new policy message regarding the timing of an exit from its ultra-loose monetary policy.

The greenback held steady against its major rivals in the Asian session, with the exception of the euro.

The greenback slipped to 108.45 against the Japanese yen, its lowest since August 29. Continuation of the greenback's downtrend may see it challenging support around the 106.00 zone.

Preliminary report from the Ministry of Health, Labor and Welfare showed that Japan's total labor cash earnings decreased for the first time in fourteen months in June, defying economists' forecast for a further rise.

Gross earnings dropped 0.3 percent year-over-year in July, reversing 0.4 percent rise in May, which was revised from a 0.4 percent fall estimated previously.

The greenback that closed Tuesday's trading at 0.9546 against the Swiss franc weakened to an 8-day low of 0.9528. The greenback is likely to find support around the 0.94 region.

The greenback fell to a 5-day low of 1.1950 against the euro, after having advanced to 1.1903 at 9:45 pm ET. The next possible support for the greenback is seen around the 1.21 mark.

Figures from Destatis showed that German factory orders declined unexpectedly in July on weak domestic demand.

Factory orders fell 0.7 percent month-on-month in July, in contrast to a revised 0.9 percent rise in June. This was the first fall in three months. Orders were forecast to climb 0.2 percent in July.

The greenback dropped to 1.3048 against the pound, a level unseen since August 8. On the downside, 1.32 is possibly seen as the next support for the greenback.

The greenback pared gains to 1.2373 against the loonie, from a high of 1.2400 hit at 3:15 am ET. The greenback is poised to challenge support around the 1.21 area.

Looking ahead, Canada and U.S. trade data for August and U.S. services PMI for August are due to be released in the New York session.

The Bank of Canada will announce its interest rate decision at 10:00 am ET. Economists expect the bank to retain interest rates unchanged at 0.75 percent.

At 2:00 pm ET, U.S. Federal Reserve releases Beige Book report.

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