REFILE-FOREX-Dollar extends losses; yen hits new highs after Abe resignation

(Refiles to remove extraneous words in lead)
* Dollar down 0.6% after Fed
* Yen up 0.5% after Abe resignation
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Elizabeth Howcroft
LONDON, Aug 28 (Reuters) - The dollar fell heavily against
most major currencies on Friday, weighed down by the prospect of
lower U.S. interest rates for a long time, while the Japanese
yen rose after news that Prime Minister Shinzo Abe will resign.
Japanese stocks tumbled and the safe-haven yen erased some
recent losses overnight when it was reported that Abe, the
nation's longest serving prime minister, will step down due to
worsening health. The yen, which had fallen to a two-week low of 106.945 yen
per U.S. dollar, strengthened after the news, as investors grew
cautious about the possibility of a shift away from Abe's
expansionary economic policy - "Abenomics".
It strengthened to as much as 105.5 by 0933 GMT. It then
eased slightly and was at 105.685 by 1009 GMT, with the dollar
down around 0.8% versus the yen since New York's close
JPY=EBS .
"You could argue if Abe is formally exiting then it
inevitably causes people to call into question Abenomics of
which the ultra easy Bank of Japan policy is one of the key
planks," said Ray Attrill, head of FX strategy at National
Australia Bank.
"Almost certainly, it's not a justified response but you'd
understand the psychological knee-jerk reaction is sort of based
on that line of thinking," he said.
At the hotly anticipated virtual Jackson Hole conference,
Fed Chair Jerome Powell said the U.S. central bank would seek to
keep inflation at 2%, on average, so that periods of too-low
inflation would likely be followed by an effort to lift
inflation above 2% for some time. In practice, market participants expect that this means the
current ultra-low rates will stay lower for longer.
The dollar fell to as low as 92.418 versus a basket of
currencies while Powell was speaking, then quickly recovered.
But it started to slide again overnight, extending losses in
early London trading.
At 1017 GMT, the dollar index was at 92.425 =USD , down
0.6% on the day, having fallen even further than during the
initial sell-off on Thursday.
Commerzbank FX analyst Thu Lan Nguyen wrote to clients that
this new strategy turned U.S. monetary policy into a black box -
a system whose workings cannot be understood from the outside -
as it suggested the Fed was not following any specific formula
to determine when to hike rates and could choose the time period
over which to measure average inflation.
"It seems to me that the market has not totally grasped the
implications of yesterday's monetary policy change for the U.S.
currency," she wrote. "Of course, the dollar had to take a
pummelling already over the past weeks, but I do see further
depreciation potential."
Currency markets were broadly pro-risk - the New Zealand
dollar rose to new two-week highs versus the U.S. dollar
NZD=D3 while the Australian dollar rose to its highest since
December 2018 AUD=D3 .
The U.S. dollar also lost around 1.1% to the Norwegian crown
NOK=D3 and 0.9% to the Swedish crown SEK=D3 .
As the dollar weakened, the euro rose to as high as $1.192
at 0912 GMT EUR=EBS . The single currency seemed little
affected by weakening consumer morale in Germany casting doubt
on household spending in Europe's largest economy. German Chancellor Angela Merkel said the coronavirus
pandemic would make things more difficult in the coming months
and over the winter. She also said she would work with the
European Parliament so that the EU recovery fund can be launched
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Dollar-yen https://tmsnrt.rs/2G72Guz
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