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* Weak U.S. service sector, labour data weigh on greenback
* Yen helped by Japanese media report on BOJ policy discord
* Sterling drops for first time in six days
By Anirban Nag
LONDON, Sept 7 The dollar fell to its lowest in
more than a week against the yen on Wednesday as subdued U.S.
data made an interest rate increase this month unlikely and
drove investors to cut favourable bets in the greenback.
In Europe, sterling fell for the first time in six
days against the dollar hurt by weak factory data. It was 0.5
percent lower at $1.3375 with the focus on Bank of England chief
Mark Carney's testimony to lawmakers. His appearance comes after
a slew of robust data in the past week saw fears of a recession
in the near term abate.
The dollar was down 0.45 percent at 101.50 yen after
dipping as low as 101.20 earlier, its lowest since Aug. 26
--when Federal Reserve chair Janet Yellen gave an upbeat speech
on the economy that revived bets of a rate hike in the near
Since then, the dollar has been struggling to make headway
and tumbled more than 1 percent against the yen on Tuesday.
"Since the Jackson Hole speech, the implied probability of
Fed's rate hike for its September meeting fell from 42 percent
to 24 percent and the 2-year Treasury yield dipped by around 10
basis points," said Petr Krpata, currency strategist at ING.
"Clearly, this is a challenging environment for the dollar."
The Institute for Supply Management's non-manufacturing
purchasing managers' index fell to 51.4 last month, far short of
economists' expectations and the largest one-month drop since
The Fed's labour-market conditions index also fell in
August, slipping back into negative territory after a positive
reading in July.
Nonetheless, San Francisco Fed President John Williams said
in prepared remarks late on Thursday that the economy was in
"good shape" and that it "makes sense to get back to a pace of
gradual rate increases, preferably sooner rather than later."
Williams did not directly cite Thursday's data.
Despite the upbeat rhetoric from the Fed, Morgan Stanley
analysts do not expect the Fed to hike at all this year as the
U.S. economy is expected to slow down from here.
"For the rates market to adjust accordingly, it may require
the Fed to change its language, which has not happened yet as
Williams illustrated overnight," Morgan Stanley strategists said
in note, adding once the Fed adjusts its communication, the
dollar would fall against the euro and the yen at a faster pace.
Also helping the yen was the Sankei newspaper's report
saying Bank of Japan policymakers were divided ahead of the
central bank's Sept. 20-21 meeting, at which BOJ Governor
Haruhiko Kuroda has said the board will conduct a comprehensive
assessment of its massive stimulus programme.
Despite the dollar's weakness, the euro
underperformed, hurt by data that showed German industrial
production post its steepest fall in nearly two years in July.
The European Central Bank holds its next Governing Council
meeting on Thursday, where it is expected to keep policy steady.
Meanwhile, Sweden's crown rose to a day's high
against the euro of 9.50 crowns per euro amid relief that the
Riksbank stood pat on rates, as expected. The crown had fallen
to a one-year low last week after a slew of weak economic data.
(Editing by Toby Chopra)