* Dollar falls, after touching August peaks against euro and
* Data on factory activity causes volatile swings in dollar
* Surprising drop in U.S. weekly jobless claims in focus
By Daniel Bases
NEW YORK, Aug 15 The dollar fell broadly on
Thursday after reversing earlier gains that sent it up against
the euro and yen amid a cross-current of economic data that
muddied the view on when the U.S. Federal Reserve will start
trimming its stimulus measures.
A surprisingly sharp drop in initial U.S. weekly claims for
jobless benefits to an almost six-year low and an inflation
figure for July that was in line with expectations supported
views that the Fed will begin shifting its policy stance sooner
rather than later, driving the dollar higher.
But the dollar surrendered gains against the yen after data
showed factory activity in the U.S. mid-Atlantic region weakened
in August as new orders fell and the pace of hiring slowed.
At one point, the greenback reached a near two-week high of
$1.3205 against the euro and 1-1/2-week peak against the yen, of
98.64 yen, before changing course.
The selloff "happened really on one trade in very thin
market conditions. It was across the board against the U.S.
dollar, not just the euro," said Michael Woolfolk, global market
strategist at BNY Mellon in New York.
Contributing to the greenback's weakness was a general
selling of U.S. Treasuries and a steep drop in U.S. equities.
"As a result of today's initial jobless claims number, the
Street is going to be marking up the expectations of a positive
non-farm payrolls report in September," Woolfolk said. "So that
could seal the deal really on a September taper. That is of
course being viewed as negative for bonds," and therefore
negative for the dollar on a flow of funds basis.
The Federal Reserve's next policy meeting, on Sept. 17-18,
will come after the government release of data on the labor
market for the month of August.
Yields on U.S. Treasuries, which move inversely to price,
rose. The benchmark 10-year Treasury yield was hovering just
under a two-year high of 2.823 percent reached
earlier in the day.
Higher U.S. yields raise the attractiveness of
dollar-denominated assets in the long-run, but for now there has
been an unprecedented bloodletting by foreigners selling U.S.
Treasuries in anticipation of a slowdown in purchases made by
the Fed to help spur economic growth.
Foreign investors sold $66.9 billion in long-term U.S.
securities for a fifth consecutive month in June, out of which
they dumped $40.8 billion in U.S. Treasuries alone.
The euro rebounded to trade at $1.3348, up 0.70
percent. Against the yen, the greenback hovered around 97.22
yen, down 0.93 percent. At its weakest point of the day
the dollar was down more than 1 percent against the Japanese
currency at 97.09.
The greenback's fortunes have been tied for months to
expectations of when the U.S. central bank will start to taper
its monthly asset purchases from the current $85 billion. It
slid more than 4 percent against a basket of major currencies
between July 9 and Aug. 8, and has risen since then.
Remarks by the president of the St. Louis Fed, James
Bullard, late on Wednesday added to the uncertainty, with
Bullard saying he had not made up his mind if next month's
policy meeting would be too soon to start curbing bond buying,
as he was wary of being too aggressive.
"This sort of broad two-way bouncing around in the dollar is
what we are going to see in the near term, until the market has
some certainty on Fed tapering, and that probably won't come
until the Fed actually announces it," said Adam Cole, global
head of FX strategy at RBC Capital Markets in London.
U.S. consumer prices rose as expected in July, which could
comfort Fed officials worried about low inflation as they weigh
trimming the central bank's massive bond-buying program.
One sticking point for Fed policymakers had been the level of
U.S. inflation, which is below the Fed's target.