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Thursday, 26 February 2015

Fed disappoints dollar bulls, weak data knocks Aussie off one-month high

A man poses with dollars, after buying them at a money exchange in Caracas, Febreuary 24, 2015.  REUTERS/Carlos Garcia Rawlins

The dollar nursed modest losses on Thursday, having eased for a second straight session after recent remarks from the head of the Federal Reserve prompted markets to push back the timing of an expected U.S. interest rate hike.

The euro edged up to $1.1364 EUR=, up from this week's trough of $1.1288, but remained stuck in a $1.12-$1.15 range held since hitting an 11-year trough of $1.1098 a month ago.

Against the yen JPY=, the greenback slipped to 118.925 yen, off this week's high of 119.84. Yet, it too has been struggling for direction since peaking at a 7-1/2-year high of 121.86 yen in early December.

The dollar, however, made a clear break lower against the sterling. The pound touched a two-month high of $1.5554 GBP=D4.

Since Fed Chair Janet Yellen's congressional testimony on Tuesday, markets have shifted their expectations of an initial rate hike toward the end of the year.

Yellen told the Senate Banking Committee the Fed would first remove the word "patient" in describing its approach to interest rate hikes, then enter a phase in which moves are possible at any meeting.

But to the disappointment of dollar bulls she did not offer any additional insight on the timing of a rate increase before the House of Representatives Financial Services Committee on Wednesday.

"The only thing that is clear is that FOMC has given itself more flexibility than before," said Ray Attrill, Global Co-Head of FX Strategy at National Australia Bank.

For immediate cues the currency market will look to the U.S. consumer prices data due at 1330 GMT (8.30 a.m. EST). ECONUS

A subdued reading amid the recent decline in crude oil prices could further enhance expectations that the Fed will not hike rates too soon. Economists polled by Reuters expect the CPI to have declined by 0.1 percent in January from the previous year following a 0.2 percent rise in December.

"Even if the U.S. CPI numbers are stronger than expected, the dollar-positive impact might be limited as the Fed also places much emphasis on wages," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"It will not be easy for the dollar to enter an uptrend again without evidence of rising wages, and focus is already turning to next Friday's jobs data."

In Asia, weak Australian business investment data added to the case for more rate cuts by the country's central bank and knocked the Aussie down from a one-month high. ECONAU

The Australian dollar was down 0.5 percent at $0.7848 AUD=D4, retreating from the one-month peak of $0.7903 touched overnight on upbeat Chinese flash HSBC/Markit PMI and the greenback's broad weakness.

The Aussie is sensitive to news out of China, its key export market.

Reference: Ian Chua and Shinichi Saoshiro

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