* Speculation Fed may tweak its forward guidance on rates
* Dollar index hits 81.548, lowest since June 20
* Investors await U.S. payrolls, ISM data next week
By Wanfeng Zhou
NEW YORK, July 26 The dollar fell to a five-week
low against major currencies on Friday on speculation the
Federal Reserve will emphasize next week its intention to keep
interest rates low for longer.
The Fed holds its two-day monetary policy meeting Tuesday
and Wednesday. A Wall Street Journal report suggested the U.S.
central bank may debate changing its forward guidance on rates
to hammer home that it will not be raising borrowing costs any
Analysts said this could keep the dollar on the defensive in
the near term, but losses will likely be limited before a deluge
of economic data releases next week, which include non-farm
payrolls for July and the Institute for Supply Management
indexes for the manufacturing and service sectors.
"Folks are just treading water. They just want to see the
big numbers next week to get some directional guidance," said
Samarjit Shankar, director of market strategy at BNY Mellon in
The dollar index fell 0.3 percent to 81.750, having
hit 81.548, its lowest since June 20 and just above chart
support at 81.506, which is its 200-day moving average.
The latest falls caused the dollar to resume a slide that
began on July 10 when minutes of the Fed's June meeting gave
investors second thoughts about when the bank would start
"We could see more squaring of long dollar positions keeping
the downward pressure on the dollar ahead of the FOMC meeting
next week," said Niels Christensen, currency strategist at
Nordea in Copenhagen.
He said investors were still long of dollars, particularly
against the yen and emerging market currencies.
The euro rose to a five-week peak of $1.3296, helped
by this week's solid euro zone purchasing managers' surveys. But
it erased gains to last trade at $1.3258, down 0.2 percent on
the day. Resistance is seen at the mid-June high of $1.3415.
Axel Merk, president and chief investment officer of Merk
Investments, said the euro had the potential to rise to $1.40
this year and $1.50 next year because European Central Bank
monetary policy was more restrictive than in the United States.
The euro is around 10 percent higher against the dollar
since European Central Bank President Mario Draghi vowed a year
ago to do whatever it takes to save the single currency, calming
investors' fears about the euro zone breaking up.
The dollar fell to a four-week low of 97.94 yen, according
to Reuters data, and was last down 1 percent at 98.27 yen
Despite Friday's losses, analysts said the U.S. currency is
expected to be well supported over the coming weeks on
expectations the Fed may scale back bond purchases as early as
A survey on Friday showed U.S. consumer sentiment rose in
July to the highest level in six years as Americans felt better
about the current economic climate, though they expected to see
a slower rate of growth in the year ahead.
For the week, the euro gained about 0.9 percent against the
dollar, its third straight week of gains. The dollar lost 2.3
percent against the yen, the worst week since mid-June.