Dollar stalls as focus shifts to Fed statement

The dollar stalled on Wednesday after weaker-than-expected US economic data failed to provide new direction for the market and focus shifted to what the Federal Reserve would say after an expected rate rise next week.
Most investors expect the Fed to raise rates by 0.25 percentage point at its September 21 policy meeting, but weak economic data could dampen hopes for at least one additional rate rise at the Fed's November or December meetings.
"If the (Fed) statement suggests they are finished with or approaching an end to raising rates, the dollar is likely to lose all the gains made on expectations for higher rates," said Katsunori Kitakura, manager of the treasury department at Chuo Mitsui Trust and Banking.
Higher US interest rates are seen helping the dollar by attracting more overseas funds to short-term dollar deposits.
The dollar fetched around 109.66 yen, little changed from levels in late New York, where it dipped 0.5 percent.
The euro was around $1.2240, down slightly from late US levels.
The dollar has spenta most of the past month floating between 109 and 111 yen and traders said it could stay in that band for sometime, even after next week's meeting of the Federal Open Market Committee (FOMC).
Implied one-month dollar/yen volatilities were at a low 8.50/65 percent, flat from late Tokyo levels on Tuesday. While one-week volatilities - which cover the period until after the FOMC meeting - were also steady around 7.5/8.25 percent.
Implied volatility is a statistical measure of how much the options market expects the price of the underlying currency to move during the life of the option.
The dollar had edged down on Tuesday after data showed the US current account gap ballooned to a record $166.18 billion - mostly the result of a huge trade deficit - in the second quarter.
That was wider than analysts' forecast for a $155.35 billion deficit and much worse than the upwardly revised $147.16 billion in the previous three months.
Other figures showed US retail sales fell 0.3 percent in August, compared with forecasts for a 0.1 percent decline.
But the dollar stayed within a three-month range against the euro as neither set of figures altered market views on the economy or the Fed's course of raising official interest rates at a "measured" pace.