The dollar dipped against the euro on Thursday, pulling further away from two-week peaks hit this week, with lingering expectations that the Federal Reserve may cut interest rates again this year hanging over the currency.
The possibility of a US rate cut has left the dollar unable to capitalise convincingly on a solid US jobs report last week, remaining near an all-time low against the euro.
The yen fell broadly after the Bank of Japan on Thursday left the benchmark overnight call rate unchanged at 0.5 percent by a vote of 8-1, the same vote tally as the past three meetings. Prior to the rate announcement, some traders bought the yen on speculation that more BoJ board members would dissent and boost expectations for a rate rise this year.
"Market players dumped the yen after they saw the BoJ's vote tally stayed at 8-1, with no change in interest rate outlook," said a senior trader at a big Japanese bank. The yen showed only limited reaction to news that Moody's Investors Service had upgraded Japan's domestic-currency government bond rating to A1 from A2.
As BoJ's rate decision passed, investors awaited comments from BoJ Governor Toshihiko Fukui at a post-meeting news conference for clues on the future path of the central bank's monetary policy.
"If he makes a hawkish comment that increases expectations for a rate rise this year, that might cause a temporary bout of yen buying, but it won't lead to any trend towards yen strength," said Tohru Sasaki, chief foreign exchange strategist for J.P. Morgan Chase Bank in Tokyo.
As long as currency volatilities remain low and stock markets stay on a solid footing, a trend of yen weakness is likely to continue even if the BoJ raises interest rates by 25 basis points by the end of the year, Sasaki said. The dollar edged up 0.1 percent to 117.30 yen and near this week's peak of 117.61 yen on EBS, which was the highest since mid-August.
The euro rose 0.1 percent to $1.4160 having bounced back from a two-week low of around $1.4015 struck on Tuesday and hovering near a record high of around $1.4280 hit earlier this month.
Sterling slipped to $2.0400 down from around $2.0425 in late US trading, after data showed that British house prices fell at their fastest pace in two years in the three months to September. The Royal Institution of Chartered Surveyors' house price balance for September fell to -14.6 from a downwardly revised -3.3 in August to reach its lowest since September 2005, RICS said on Thursday. The euro climbed 0.2 percent against the yen to 166.05 yen moving towards a 2-1/2-month high of 166.25 yen hit on electronic trading platform EBS on Wednesday.
Implied prospects for the Fed to cut interest rates by 25 basis points this month stood at about 34 percent on Wednesday compared with 64 percent before last week's stronger-than-expected September payrolls report. But US December rate futures still imply a roughly 76 percent chance of a 25-basis-point rate cut in December.