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Dollar falls against yen on risk aversion, Brainard speech

Foreign exchange currencies.
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Foreign exchange currencies.

The U.S. dollar fell against the safe-haven yen on Monday as uncertainty surrounding a potential Federal Reserve rate hike this month fueled a selloff in riskier currencies, while speculation of a less-dovish Bank of Japan also helped the yen.

The dollar was last down 1 percent against the yen at 101.65 yen after falling as low as 101.73 yen, or just over a percentage point against the Japanese currency. Investors focused on a speech made by Fed Governor Lael Brainard, in which she said that, while economic progress continues, it would be wise for the Fed to keep monetary policy loose.

Brainard's speech, the last scheduled by a Fed member before the central bank's meeting on Sept. 20-21, was scrutinized to see if she maintains her dovish stance on rates or takes a more aggressive posture.

A number of top Fed officials have hinted at a possible rate increase at the central bank's meeting this month. Atlanta Fed president Dennis Lockhart said on Monday that current economic conditions warrant a "serious discussion" of whether to raise rates at next week's Fed meeting.

"You still have a heightened concern that the Fed may actually do something before the market anticipates," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

Fed funds futures, however, implied that traders expected just a 21 percent chance of a Fed rate hike later this month, according to the CME Group's FedWatch program.

Fears that the Bank of Japan (BOJ) could shift to less stimulative monetary policy also boosted the yen against the dollar. The BOJ is studying several options to steepen the bond yield curve, sources familiar with its thinking said.

"There's a sense in the marketplace that (the BOJ is) not going to increase the JGB purchase program," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York, in reference to Japanese government bonds.

While fears of a potential Fed rate hike as soon as this month boosted the dollar against the higher-yielding Australian dollar and riskier emerging market currencies, the greenback was little changed against the euro and down slightly against the Swiss franc.

Analysts said the dollar lost some steam on profit-taking after Friday's rally and U.S. Treasury yields turning little changed after jumping earlier. The euro was last at $1.1247.

The dollar index, which measures the dollar against a basket of six major currencies, was last down 0.34 percent at 95.01.