Dollar falls 2 pct vs yen, over 1 pct vs euro Dollar wipes out...

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    • Dollar falls 2 pct vs yen, over 1 pct vs euro
    • Dollar wipes out gains vs yen from Bank of Japan move
    • Comments from Fed's Dudley, U.S. data suggest dovish Fed
    • Dollar index hits over 7-week low
    • Commodity currencies gain vs dollar on oil rebound

    (Updates to open of U.S. trading, changes byline, dateline; previous LONDON)

    The dollar hit its lowest level against the euro since last October and wiped out recent gains against the Japanese yen on Wednesday amid growing skepticism that the Federal Reserve would be able to hike U.S. interest rates again this year.

    The euro rose over 1 percent against the dollar to hit $1.10810, its highest level since Oct. 28, while the greenback fell 2 percent against the yen to a nearly two-week low of 117.500 yen, erasing Friday's gains against the currency notched after the Bank of Japan shifted to negative rates.

    Analysts said comments from New York Fed President William Dudley, who told MNSI that financial conditions have tightened considerably in the weeks since the U.S. central bank raised interest rates and monetary policymakers would have to take that into consideration should that phenomenon persist, weighed on the dollar.

    Also on Wednesday, weaker-than-expected data showing the U.S. economy's services sector expanded in January, but at a slower pace than the previous month, also weighed on expectations that the Fed would be able to hike rates again this year.

    "Fed rate forecasts are coming under fire," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, referring to Fed policymakers' forecasts in December of four U.S. interest rate hikes in 2016.

    "The notion of a sidelined Fed over the course of 2016 is gaining traction with every sub-par reading on the U.S. economy," he added.

    The dollar index .DXY , which measures the greenback against a basket of six major currencies, hit 97.461, its lowest level in over seven weeks. The dollar hit a nearly two-week low against the Swiss franc of 1.00530 francs CHF=EBS .

    The euro was last up 1.08 percent against the dollar at $1.10385 EUR=EBS . The dollar was last down 1.42 percent against the yen at 118.220 yen JPY=EBS while the dollar index was last down 1.16 percent at 97.730.

    The New York Fed's Dudley also said the weakening outlook for the global economy and any further strengthening of the dollar could have "significant consequences" for the health of the U.S. economy.

    "Dudley's comments played into the mood of unwinding Fed tightening expectations," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

    A rebound in oil prices from Tuesday's declines lifted commodity-linked currencies, such as the New Zealand, Canadian and Australian dollars. The New Zealand dollar rose over 2 percent against the greenback to a nearly one-month high of $0.6654 NZD=D4 .

 
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