SYDNEY, Sept 16 - The U.S. dollar fell to a near four-week low against a basket of major currencies on Monday as investors bet the Federal Reserve will keep monetary policy loose for longer after Lawrence Summers pulled out from the race to be the next Fed chief.
Summers is perceived by markets as relatively hawkish and his decision could leave Janet Yellen, a well known policy dove, as front runner for the top job. President Barrack Obama has accepted Summers’ withdrawal.
The dollar fell 0.5 percent against a basket of major currencies .DXY to reach lows not seen since August 21.
Against the yen, the greenback initially slid to a two-week low of 98.45, from 99.30 late in New York on Friday, though it later clawed back to 98.88.
The euro jumped to a 2-1/2 week high around $1.3383, from $1.3300. It was last at $1.3366.
The dollar was already under pressure as markets positioned for the Fed to scale back its massive $85 billion monthly bond-buying stimulus by a modest $10 billion later this week, following the September 17-18 meeting.
“It had been perceived that if Summers had come into the Fed, he’d have been more likely to remove U.S. policy accommodation quicker,” said Sam Tuck, currency strategist at ANZ in Auckland.
“Now that he’s withdrawn his name there’s speculation that policy accommodation withdrawal will take longer.”
The dollar also lost ground against commodity currencies such as the Australian and New Zealand dollars.
The Aussie climbed roughly half a U.S. cent to a high of $0.9370, while the kiwi jumped to $0.8234, reaching highs not see since mid-May.
The news of Summers’ withdrawal broke at a time when market liquidity was very thin with U.S. markets shut and Asia yet to fully open. Tokyo, the region’s biggest financial market, will stay closed for a public holiday.
“It’ll be crucial to see how the market plays out from here. I’d presume we stabilise for a little while,” said Greg Gibbs, senior strategist at RBS in Singapore.
“But I wouldn’t discount the significance of the news, it’d certainly filter through into stronger currencies in the region and we may even see Europe push the dollar down even further.”
There is little in the way of major economic news in Asia until later in the day when India releases inflation numbers.
Additional reporting by Naomi Tajitsu in WELLINGTON; Editing by Shri Navaratnam