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Dollar inches up vs yen as investors expect Fed will stay aggressive

·4-min read
Illustration shows U.S. Dollar banknotes

(Updates to late New York trading levels)

By Caroline Valetkevitch

NEW YORK (Reuters) - The dollar was slightly higher against the yen on Thursday following data showing U.S. retail sales unexpectedly rebounded in August, while the Swiss franc hit its strongest against the euro since 2015.

The dollar pared some gains following the data, which showed retail sales increased 0.3% last month, but demand for goods is cooling as the U.S. Federal Reserve raises interest rates. Economists polled by Reuters had forecast sales would be unchanged.

The dollar has been supported by the view that the Fed will keep tightening policy aggressively.

Many market participants believe that recent data including this week's surprise increase in consumer prices in August is likely to give the U.S. central bank enough reason to announce a third consecutive 75-basis-point rate hike next Wednesday.

"The details of the retail sales report weren't nearly as strong as the headline. If you break down the retail sales report, it was generally a bit softer," said Adam Button, ForexLive chief currency analyst.

With the dollar, "the default mode in the currency market is to buy the dollar unless there's a good reason to sell it," he said.

The dollar was up 0.2% against the yen at 143.47, having fallen 1% on Wednesday on news that the Bank of Japan had checked on exchange rates with banks - a possible preparation for yen buying. The dollar index was up 0.1% at 109.69.

Investors continued to debate whether Japanese authorities really would intervene to support their currency, which has fallen sharply this year.

A record Japanese trade deficit for August has also underscored the bearish trend for the yen.

Japanese currency officials "stepped up their rhetoric this week, and the market is really still calling their bluff. It's very tough to talk a currency down when the fundamentals are so divergent," Button said.

Earlier in the session, the Swiss franc rose against the euro to its strongest level against the single currency since January 2015, when the Swiss National Bank scrapped its minimum exchange rate of 1.20 francs per euro.

Meanwhile, the dollar was down 0.1% against the Swiss franc.

The SNB also meets next week and there is some speculation in the market that it could join the Fed and ECB with outsized rate increases. Money markets are fully pricing in a 75 basis-point rate rise from the SNB, according to data from Refinitiv.

The euro was up 0.2% at $0.9996. It hit a 20-year low of $0.9864 last week.

In crypto markets, Vitalik Buterin, Ethereum inventor and co-founder, wrote on Twitter that a major software upgrade to the Ethereum blockchain aimed at slashing its energy usage has been completed.

The token, which underpins the ethereum network, was last down 8.6%. Bitcoin was down 2.2%.

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Currency bid prices at 4:00PM (2000 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

109.6900 109.6000 +0.10% 14.663% +109.9200 +109.4100

Euro/Dollar

$0.9996 $0.9978 +0.17% -12.08% +$1.0018 +$0.9956

Dollar/Yen

143.4650 143.1750 +0.19% +24.61% +143.7950 +142.8000

Euro/Yen

143.40 142.87 +0.37% +10.04% +143.6700 +142.5700

Dollar/Swiss

0.9610 0.9623 -0.11% +5.37% +0.9641 +0.9558

Sterling/Dollar

$1.1469 $1.1542 -0.60% -15.17% +$1.1548 +$1.1461

Dollar/Canadian

1.3229 1.3169 +0.46% +4.63% +1.3240 +1.3155

Aussie/Dollar

$0.6703 $0.6748 -0.65% -7.78% +$0.6770 +$0.6696

Euro/Swiss

0.9606 0.9604 +0.02% -7.36% +0.9612 +0.9533

Euro/Sterling

0.8713 0.8646 +0.77% +3.73% +0.8720 +0.8641

NZ

Dollar/Dollar $0.5968 $0.6002 -0.54% -12.78% +$0.6025 +$0.5965

Dollar/Norway

10.1690 10.1115 +0.65% +15.52% +10.1800 +10.0890

Euro/Norway

10.1670 10.0557 +1.11% +1.54% +10.1723 +10.0569

Dollar/Sweden

10.7260 10.6873 +0.55% +18.94% +10.7444 +10.6710

Euro/Sweden

10.7219 10.6629 +0.55% +4.77% +10.7345 +10.6643

(Additional reporting by Alun John in London and Rae Wee in Singapore; Editing by Sam Holmes, Kim Coghill, Hugh Lawson, Diane Craft and Jonathan Oatis)