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U.S. Dollar falls mildly, as weak Asian data increases easing prospects

Published 08/15/2016, 05:23 PM
Updated 08/15/2016, 05:29 PM
The U.S. Dollar Index remained near 1-month lows on Monday at 95.43

The U.S. Dollar Index remained near 1-month lows on Monday at 95.43

Investing.com -- The U.S. Dollar Index fell slightly on Monday remaining near one-month lows, as a rash of subdued economic data in Asia increased the possibility for further stimulus measures from leading central banks, applying downside pressure on the volatile greenback.

The Index, which measures the strength of the greenback versus a basket of six other major currencies, fell by more than 0.15% on Monday to an intraday low of 95.43 on pace for its fourth losing session over the last five trading days. Since hitting four-month highs in late-July, the dollar has retreated by approximately 2% over the last three weeks. More broadly, the index has tumbled more than 3% since opening the year around 99, weeks after the Federal Reserve ended a seven-year Zero Interest Rate Policy (ZIRP).

Investors on Monday continued to monitor global central bank activity closely ahead of next week's Jackson Hole Summit for leading central bankers in Wyoming. On Monday, the Nikkei fell 0.3% amid subdued economic growth in Japan over the three-month period through June, exacerbating concerns that further stimulus plans could be forthcoming before the end of the year. Over the quarter, Japan's economy grew at a rate of 0.2% over the prior 12 months, sharply below forecasts of a 0.7% increase and marking a considerable slowdown from gains of 2% over the first three months of the year. The subdued report comes in the wake of the launch of a ¥28 trillion stimulus plan aimed at staving off deflation. USD/JPY fell to an intraday low of 100.87, remaining near 1-year lows.

In addition, stock markets in China soared roughly 3% to a seven-month high, as investors prepared for fresh stimulus measures in the world's second-largest economy following the release of weak economic data on Monday. Last month, new bank loans in China rose to 463.6 billion yuan, the data showed, approximately half the level anticipated by economists in a Bloomberg survey. The weak reading triggered for fresh concerns of the need for loose monetary policies by the People's Bank of China to jumpstart an economy mired in the slowest period of economic growth in two decades.

As leading central banks worldwide continue to employ unconventional negative interest rate policies in an effort to boost economic growth, the Fed weighs the timing of its next interest rate hike. When the Federal Open Market Committee (FOMC) approved a 25 basis point rate hike last December, the U.S. central bank estimated that it could raise rates as much as four times this year at the start of its first tightening cycle in nearly a decade. The FOMC, though, has left rates steady at each of its five meetings this year amid mixed employment data and below target inflation.

Any rate hikes by the FOMC this year are viewed as bullish for the dollar as investors pile into the greenback in order to capitalize on higher yields.

Yields on the U.K. 10-Year tumbled to a fresh all-time record low of 0.503 on Monday, before rallying to 0.539, up two basis points on the session. The British Pound, meanwhile, fell 0.26% to 1.286 against the U.S. Dollar, remaining near 31-year lows. Over the weekend, the Sunday Times reported that the U.K. could delay its departure from the European Union until 2019, amid widespread difficulties with the transition into prime minister Theresa May's new government.

Across the Atlantic, yields on the U.S. 10-Year rose four basis points to 1.56%. Over the last year, yields on 10-year U.S. Treasuries have plunged more than 60 basis points.

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