Dollar slips on expectations for later Fed rate hike

The U.S. dollar has regained some strength in recent weeks.
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The U.S. dollar slipped against a basket of major currencies on Tuesday on continued expectations that the Federal Reserve will not hike interest rates this year, while uncertainty over the outcome of a Bank of Japan meeting capped the yen's gains.

Commerce Department data showing the largest expansion in the U.S. trade deficit in five months in August reinforced expectations that the Fed would delay hiking rates for the first time since 2006 until next year. A weak U.S. jobs report on Friday has also driven expectations of a later Fed rate hike.

That outlook hurt the dollar, which is likely to benefit from eventual rate hikes as they are expected to drive investment flows into the United States.

"People are still very skeptical about the Fed raising rates this year," said Thierry Albert Wizman, interest rates and currency strategist at Macquarie Ltd in New York.

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The Bank of Japan began its two-day policy meeting on Tuesday. Uncertainty as to whether the central bank would hold monetary policy steady or hint at expanding its stimulus program limited the yen's gains against the dollar.

The dollar was last down 0.14 percent against the yen at 120.26 after hitting a more than one-week high of 120.575 yen early in the U.S. trading session.

"There's definitely a school of thought that believes that the possibility that the Bank of Japan will ease tonight is slightly greater as a derivative of weaker U.S. economic data," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

Euro and Swiss franc gains against the dollar remained within recent trading ranges. Scalone of TJM said expectations that the Fed will not hike rates this year have reduced volatility.

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The was last up 1.02 percent against the U.S. dollar at $0.7157, near an earlier two-week high of $0.7139 after the Reserve Bank of Australia left interest rates unchanged. The central bank's relaxed message on threats to growth also quelled speculation it would cut interest rates further this year.

The euro was last up 0.7 percent against the dollar at $1.1272. The dollar was last down 0.91 percent against the Swiss franc at $0.9669 franc.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.66 percent at 95.47.

On Wall Street, the benchmark S&P 500 stock index was last down 0.51 percent.