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. Last Updated: 07/27/2016

Dollar Falls Against Yen Over Doubts of Fed Cut

TOKYO -- The dollar fell to a one-week low against the yen Monday due to growing speculation that the Fed will not cut interest rates -- a decision that would probably hurt Wall Street as well as the greenback, traders said.

Some bears also used the bankruptcy of US Airways Group Inc. as an excuse to sell the U.S. currency.

"If the Fed does not cut rates, U.S stock prices will be hurt and it will also push down the dollar gradually," a Japanese bank dealer said.

Dealers said the dollar's fall gained momentum after triggering several stops around 119.70 to 119.80 yen, which drove down the currency to a one-week low of 119.66 yen. But there were plenty of investors' bids around 119.30 to 119.50 yen, they said.

"There are not enough factors to take short dollar positions at this stage," the dealer said.

At 8:50 a.m Moscow time, the dollar was quoted at 119.95 yen compared with 120.07 in late U.S. trade Friday. The euro rose to 97.41 cents against Friday's 96.94 cents.

The single currency also made gains to 116.85 yen from 116.52 late Friday in New York.

Activity was thin in Tokyo as many Japanese players were away for the traditional Obon summer holiday, starting this week.

"The news about US Airways appears to have had some negative impact on the dollar. It may have provided a good excuse for dollar-bears to trigger stops below 120 yen," said Shogo Nagaya, forex section manager at Nomura Trust and Banking.

Dealers said the center of focus was the policy-setting meeting by the Federal Reserve scheduled for Tuesday.

"I'm not sure how the bankruptcy of US Airways will influence the Fed's decision. The market largely doesn't expect it to ease this time, but the Fed may change its bias," Nagaya said.

Traders said a decision by the U.S. central bank to keep the federal funds rate at 1.75 percent could hurt dollar sentiment, though they added that the impact would likely be limited.

Wall Street stocks rose last week, spurred on by an International Monetary Fund rescue package for Brazil, which is a major borrower from some U.S. banks, and by speculation the Fed might cut rates or at least set the stage for lower rates.

But such speculation cooled Friday after articles in the Washington Post, the Wall Street Journal and BusinessWeek magazine suggested lower U.S. rates were no sure bet.

The foreign exchange market reacted little to figures in the morning showing a rise in Japan's current account surplus by 90.3 percent in June from a year earlier, the ninth straight month of increase.

But the yen briefly came under pressure from a Bank of Japan decision not to upgrade its economic assessment in a monthly report -- the first time in six months it has not done so -- as traders covered shorted positions in euros and Australian dollars.