Dollar sags as weaker-than-expected U.S. inflation continues to weigh

* Dollar hits four-week low vs yen

* Weak Chinese data weighs on yuan, Aussie dollar

* Aussie dollar falls to two-week low

By Gertrude Chavez-Dreyfuss and Ritvik Carvalho

NEW YORK/LONDON, Sept 15 (Reuters) - The dollar weakened against major currencies on Wednesday after softer-than-expected U.S. inflation data released on Tuesday eased short-term expectations about tapering of asset purchases from the Federal Reserve.

The dollar index =USD last stood at 92.441, down about 0.3% on the day from Tuesday, when it dropped following the inflation data but then recovered on haven demand as stocks slid on Wall Street.

But the greenback trimmed losses after import prices fell unexpectedly in August and a higher-than-expected reading for the NY Fed's business survey.

The index, a measure of the dollar's value against six major currencies, has meandered between 92.3 and 92.9 over the past week as several Fed officials suggested the U.S. central bank could reduce its buying of debt securities by the end of the year, even after a much-weaker-than-expected payrolls report at the start of the month.

While elevated inflation has kept pressure on policymakers, data overnight showed the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1% last month.

"The U.S. dollar is struggling to find a stronger sense of direction amidst all this because weak NFP (non-farm payrolls) and CPI (consumer price index) data appear to be denting Fed expectations, while investors also have to factor in the soft run in stocks — and the risk that softness might extend — which would support the U.S. dollar on haven flows," wrote Shaun Osborne, chief FX strategist, at Scotiabank in a research note.

The Federal Open Market Committee's (FOMC) two-day policy meeting next week should provide some clarity on the outlook for tapering and interest rates.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. It also means the central bank will be buying fewer debt assets, in effect reducing the number of dollars in circulation and increasing the currency's value.

Valentin Marinov, head of G10 FX research at Credit Agricole, said the Fed could start preparing the ground for a very cautious policy normalization next week, potentially as soon as November.

In early New York trading, the euro rose 0.2% to $1.1825 EUR=EBS .

The dollar slipped to a four-week low of 109.14 yen JPY=EBS , and last changed hands at 109.15, down 0.5%.

Meanwhile, the Chinese yuan CNY=CFXS and the Australian dollar AUD=D3 were knocked lower after Chinese data showed factory and retail sales growth cooled more sharply than expected last month.

Adding to the broader China worries in financial markets was a media report that property developer China Evergrande Group 3333.HK will not be able to make interest payments on its debt next week.

The yuan extended its decline for the day to as far as 6.4433 yuan per dollar. The dollar was last down 0.1% at 6.4302 yuan.

The Aussie dollar sank as low as US$0.7301 for the first time in more than two weeks following China's data, but recovered to trade little changed on the day at US$0.7317.


Currency bid prices at 8:41AM (1241 GMT) Description



U.S. Close Pct Change


High Bid

Low Bid




Dollar index







+92.4190 Euro/Dollar







+$1.1799 Dollar/Yen






+109.7400 +109.1100 Euro/Yen






+129.5300 +129.0600 Dollar/Swiss







+0.9164 Sterling/Dollar GBP=D3






+$1.3794 Dollar/Canadian CAD=D3






+1.2667 Aussie/Dollar







+$0.7302 Euro/Swiss







+1.0841 Euro/Sterling







+0.8535 NZ







+$0.7074 Dollar/Dollar








+8.5675 Euro/Norway







+10.1240 Dollar/Sweden







+8.5692 Euro/Sweden








World FX rates Link

Reporting by Gertrude Chavez-Dreyfuss in New York and Ritvik
Carvalho in London; Editing by Toby Chopra, Chizu Nomiyama and
Timothy Heritage

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