By Sam Forgione
NEW YORK (Reuters) – The U.S. dollar fell on Monday from Friday’s more than two-week high against a basket of major currencies on expectations that any Bank of Japan action this week would not weaken the yen and that the Federal Reserve would refrain from raising interest rates.
The central banks are scheduled to hold separate policy-setting meetings on Sept. 20-21. The BOJ is due to conduct a comprehensive review of its policy framework, which combines negative interest rates with a massive asset-buying program.
Speculation is rife that the BOJ will change tack in favor of a policy mix that would add stimulus while protecting banks from problems generated by negative interest rates on deposits.
A growing belief that the BOJ will stop short of the dramatic action needed to weaken its currency, however, sent the dollar to a six-day low against the yen of 101.59 yen <JPY=>. The dollar was last down 0.49 percent against the yen at 101.78 yen.
“The market is of the mindset that Tokyo is at or near the end of its monetary rope,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Doubts that the BOJ is capable of weakening the yen have grown since the central bank shocked markets in January by cutting rates below zero for the first time, which only weakened the currency temporarily. The yen has since gained more than 15 percent against the dollar.
Expectations that the Fed will not raise interest rates this week also weakened the dollar. Traders saw just a 12 percent chance of a rate hike this Wednesday, according to CME Group’s FedWatch program. Expectations are far higher for a rate hike in December, at 55 percent.
“The market is resigned to believe that (the Fed is) not going to raise rates this week,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.
The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.30 percent at 95.822 <.DXY> after hitting a 15-day high of 96.108 on Friday. The euro was last up 0.22 percent against the dollar at $1.1178.
Commodity-linked currencies such as the Australian, New Zealand and Canadian dollars rose on gains in oil prices. The Aussie was last up 0.69 percent at $0.7547 after hitting a more than one-week high of $0.7573.
(Reporting by Sam Forgione; Additional reporting by Patrick Graham in London; Editing by Meredith Mazzilli and Richard Chang)