US Markets

Dollar slides on Fed shift; yen surges after Abe resignation

Credit: REUTERS/THOMAS WHITE

The dollar fell on Friday as the U.S. Federal Reserve's new policy framework suggested that interest rates would remain low, while the yen surged after Japanese Prime Minister Shinzo Abe announced his resignation.

By April Joyner

NEW YORK, Aug 28 (Reuters) - The dollar fell on Friday as the U.S. Federal Reserve's new policy framework suggested that interest rates would remain low, while the yen surged after Japanese Prime Minister Shinzo Abe announced his resignation.

The yen JPY=EBS significantly strengthened against the dollar after the news that Abe, Japan's longest serving prime minister, would step down due to worsening health.

Concerns about a possible shift away from Abe's expansionary economic policy, known as Abenomics, drove the move in the safe-haven currency, investors said.

The dollar was last down 1.0% against the yen at 105.45.

"You're seeing yen strength on a little bit of uncertainty," said Lou Brien, strategist at DRW Trading in Chicago. "Abenomics has been one of the more influential economic strategies."

The greenback resumed its slide against a basket of major currencies in the wake of Fed Chair Jerome Powell's remarks at the virtual Jackson Hole conference. Powell said the U.S. central bank would seek to keep inflation at 2%, on average, so that periods of too-low inflation would likely be followed by an effort to lift inflation above 2% for some time.

In practice, market participants expect that this means the current ultra-low rates will stay lower for longer, thereby pressuring the dollar. After recovering from an initial slide on Thursday immediately after Powell's speech, the dollar weakened once again overnight.

The dollar index =USD was last 0.5% lower at 92.513.

As the dollar weakened, the euro EUR=EBS climbed 0.4% to $1.1875.

The euro's ascent puts it closer to a technical level of $1.19, said Brien, which it has tested periodically over the last month.

"If it goes through it, it could be a significant moment," he said. "The (Fed's) new stance on inflation gives it an opportunity to retest it."

Currency markets were broadly pro-risk. The New Zealand dollar NZD=D3 hit its highest against the U.S. dollar since January while the Australian dollar rose to its highest since December 2018 AUD=D3.

The U.S. dollar also lost around 1.0% to the Norwegian crown NOK=D3 and 0.8% to the Swedish crown SEK=D3.

========================================================

Currency bid prices at 10:19AM (1419 GMT)

Description

RIC

Last

U.S. Close Previous Session

Pct Change

YTD Pct Change

High Bid

Low Bid

Euro/Dollar

EUR=

$1.1875

$1.1821

+0.46%

+5.93%

+1.1919

+1.1812

Dollar/Yen

JPY=

105.4500

106.5500

-1.03%

-3.13%

+106.9400

+105.2100

Euro/Yen

EURJPY=

125.25

125.96

-0.56%

+2.71%

+126.7500

+125.2000

Dollar/Swiss

CHF=

0.9058

0.9088

-0.33%

-6.41%

+0.9102

+0.9025

Sterling/Dollar

GBP=

1.3287

1.3198

+0.67%

+0.21%

+1.3320

+1.3187

Dollar/Canadian

CAD=

1.3110

1.3123

-0.10%

+0.95%

+1.3132

+1.3047

Australian/Dollar

AUD=

0.7333

0.7258

+1.03%

+4.44%

+0.7349

+0.7256

Euro/Swiss

EURCHF=

1.0759

1.0744

+0.14%

-0.86%

+1.0768

+1.0743

Euro/Sterling

EURGBP=

0.8938

0.8954

-0.18%

+5.73%

+0.8974

+0.8936

NZ Dollar/Dollar

NZD=

0.6714

0.6637

+1.16%

-0.33%

+0.6728

+0.6631

Dollar/Norway

NOK=

8.8187

8.9151

-1.08%

+0.46%

+8.9218

+8.7781

Euro/Norway

EURNOK=

10.4740

10.5370

-0.60%

+6.47%

+10.5530

+10.4530

Dollar/Sweden

SEK=

8.6506

8.7160

-0.39%

-7.45%

+8.7355

+8.6100

Euro/Sweden

EURSEK=

10.2749

10.3156

-0.39%

-1.86%

+10.3215

+10.2602

(Reporting by April Joyner; Additional reporting by Elizabeth Howcroft in London and Swati Pandey in Sydney)

((April.Joyner@thomsonreuters.com; +1 646 223 7480; Reuters Messaging: april.joyner.thomsonreuters.com@reuters.net; Twitter: @aprjoy))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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