* USD/JPY touches one-month low
* Fed may bolster dovish forward guidance
* Plenty of event risk with ECB and BoE meetings, major data
By Anirban Nag
LONDON, July 29 The dollar fell to a one-month
low against the yen on Monday, and a five-week trough against a
basket of currencies on expectations the Federal Reserve intends
to keep interest rates low for some time.
The dollar's losses underpinned the euro, which was
holding near five-week highs as spreads between U.S. 10-year
Treasury yields and German Bunds
The spread widened to its highest since late 2006 earlier in
July helping the dollar. But with doubts growing over when the
Fed will start withdrawing stimulus, the gap has narrowed. The
Fed starts a two-day meeting on Tuesday.
The dollar index, which shed 1.2 percent last week
for its third straight weekly loss, was trading flat at 81.63
while dollar/yen was down 0.35 percent at 97.91, having
fallen to 97.635 yen - its lowest since late June.
The euro was flat at $1.3275, not far from a five-week high
of $1.32975 struck on Friday.
"Investors are trimming long dollar positions going into the
Fed meeting as they are expecting the Fed not to just have a
dovish bias but also a pledge to keep rates low," said Alvin
Tan, currency strategist at Societe Generale.
"But we think that tapering of stimulus will nonetheless
start and that will be the overriding factor. Any dip in the
dollar is a buying opportunity."
On Friday, U.S. payrolls report will be released with
forecasts for 185,000 jobs being added in July and a dip in the
jobless rate to 7.5 percent. A strong report would
support the case for the Fed to start rolling back its stimulus
in September and help the dollar.
"A scope for the unemployment rate to fall perhaps 0.2
percentage points in Friday's labour report, might see the
dollar end the week more positively," said Tom Levinson,
currency strategist at ING
ECB, BOE MEET
Apart from the Fed, this week will be a busy week for
central banks with both the Bank of England and the European
Central Bank holding policy meetings.
The BoE and ECB are expected to repeat or refine their
respective versions of forward guidance that policy will stay
loose for an extended period.
Bank of Japan Governor Haruhiko Kuroda said the bank's
quantitative easing plan is working well but his comments
provided only a limited boost to dollar/yen.
Instead, a big drop in Japanese stocks prompted some
accounts, such as algorithm players, to automatically sell
dollar/yen, which has had high correlation with the Nikkei share
average ever since Japanese Prime Minister Shinzo Abe
pledged to adopt a bold strategy to end deflation.
The Nikkei fell 3.3 percent, hitting four-week lows,
while Asian stock markets were also in the red, prompting
investors to seek safety in the more liquid yen.