TOKYO, Oct 1 The dollar extended its losses to fall to a record low against the euro and

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TOKYO, Oct 1 (Reuters) The dollar extended its losses to fall to a record low against the euro and an all-time low versus a basket of currencies on Monday, after tame U.S. inflation data bolstered the case for more Federal Reserve rate cuts.

The yen trimmed earlier losses against the dollar and euro after the headline reading in the Bank of Japan's September tankan survey came in slightly above market forecasts, keeping alive expectations for a BOJ rate rise in coming months.

While the headline diffusion index (DI) for big manufacturers' sentiment was unchanged from the previous survey at plus 23, it was above the market's median forecast of plus 22.

''Since the DI for big manufacturers did not decline and the capex numbers were strong, it seems to have triggered some yen buying initially,'' said Masafumi Yamamoto, currency strategist for Nikko Citigroup.

Yamamoto said the data probably won't alter the outlook for the Bank of Japan's monetary policy in any drastic way, but added that it may prompt some investors to think that a BOJ rate rise to 0.75 percent by year-end can not be ruled out.

The tankan showed big firms expect their capital spending to rise 8.7 percent in the year ending March 31, compared with the market's median forecast for a 7.5 percent rise.

The dollar, which had stood near 114.90 yen just before the tankan, slipped to just below 114.80 yen after the data was released.

The dollar was last quoted at around 114.85 yen, little changed from levels in late U.S. trading on Friday.

The euro was steady on the day at 163.87 yen but down a tad from around 163.95 yen before the tankan's release.

Against the dollar, the euro was steady at $1.4270 having pulled back slightly from record highs above $1.4280 hit on electronic trading platform EBS earlier on Monday.

The dollar index, a gauge of the greenback's value against a basket of six major currencies, was steady at 77.712, having trimmed some losses after falling to a record low of 77.657 earlier this morning.

The dollar had extended its losses after falling late last week as the Federal Reserve's favoured inflation gauge showed a muted rise in core consumer prices.

The 1.8 percent year-over-year increase in the core PCE price index brought the reading within the Fed's presumed comfort zone of between 1 and 2 percent.

The data supported market expectations for the U.S. Federal Reserve to cut interest rates further on top of its hefty 50-basis point cut to 4.75 percent in September.

Given the euro's hefty gains since mid-August, traders said the single European currency could see a pull back in the near term.

But even if that is the case, it may only be a temporary setback for the euro, said a trader for a major Japanese trading house.

''Technical signs all show that the euro is over-bought,'' the trader said.

''But when a trend forms, technical data isn't very relevant,'' he added.

Reuters MP VP0622

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