FOREX-Dollar at 3 1/2-week low as China woes seen restraining Fed
(adds details, updates with sterling reaction to UK data)
* China seen making Fed wait longer before hiking rate
* Euro reclaims ground above $1.14, eyes mid-Sept high
* Sterling up 0.7 percent after strong jobs report
By Anirban Nag
LONDON, Oct (HKSE: 3366-OL.HK - news) 14 (Reuters) - The dollar fell to a 3 1/2-week low against a basket of currencies on Wednesday as more signs of economic weakness in China bolstered expectations the U.S (Other OTC: UBGXF - news) . Federal Reserve will wait longer before raising interest rates.
The Australian dollar stayed below two-month highs after subdued inflation data from China underpinned a growing view that the world's second-largest economy was losing momentum. China is a huge export market for Australia and the Australian dollar is used as a proxy for investments to China.
China's price data showed annual consumer inflation slowed more than expected to 1.6 percent in September, below market expectation of 1.8 percent, from 2.0 percent in August.
The inflation number, coming a day after data showed Chinese imports fell 20 percent in September, suggested the economic picture in China was cloudy and will be a factor constraining the Fed's ability to raise interest rates.
"The inflation data today and a sharp decline in imports yesterday are depressing risk sentiment," said Niels Christensen, currency strategist at Nordea.
"A clouded outlook for China can used as an argument by the Fed to postpone a rate hike. In any case we are seeing more and more Fed members arguing against a rate hike."
Fed Governor Daniel Tarullo told CNBC television he does not expect the economy to be ready for a rate hike this year, while St. Louis Fed President James Bullard said an October rate rise is unlikely.
Focus will now be on U.S. retail sales data and producer prices, though both are not expected to offer much solace to bruised dollar bulls.
The dollar index fell 0.3 percent to 94.434, its lowest since Sept 18. A prime beneficiary of the dollar's weakness was the euro, which rose 0.3 percent to $1.1427, with its Sept. 18 high of $1.1460 seen as a likely target.
Against the yen, the dollar fell 0.2 percent to 119.50 yen .
Meanwhile, sterling jumped 0.7 percent to $1.5355, recovering from a steep drop on Tuesday when negative inflation data hit sentiment. On Wednesday, data showed Britain's unemployment fell to its lowest in more than 7 years, while wages were still growing at a healthy pace.
That added to the debate whether the Bank of England would pip the Federal Reserve in raising rates sometime next year.
"Today's labour force survey signals that there is very little slack remaining in the jobs market. Rising wage pressures will likely prompt the Bank of England to hike interest rates soon, most likely in the first quarter of next year," said Dean Turner, economist at UBS Wealth Management. (Editing by Tom Heneghan)