FOREX-Dollar hits two-year low, fourth month of losses on Fed inflation mandate

* Dollar index hits two-year low
* August is dollar's fourth straight month of losses
* August is euro's fourth straight month of gains
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(New throughout; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, Aug 31 (Reuters) - The dollar hit a more than
two-year low and a fourth straight month of losses on Monday in
the wake of the U.S. Federal Reserve's policy shift on
inflation.
Against a basket of currencies =USD the dollar was down
0.15% at 92.097 in midday trading, having earlier hit its lowest
since April 2018. It is down 1.24% for the month, marking its
worst August in five years and the longest run of monthly losses
since the summer of 2017.
The euro EUR= , which makes up the majority of the basket
against which the dollar index is weighted, was up 0.35% at
$1.195, having gained 1.45% in August, also its fourth straight
month of increases.
Investors are adjusting to a speech last Thursday in which
Federal Reserve Chair Jerome Powell outlined an accommodative
policy change that is believed could result in inflation moving
slightly higher and interest rates staying lower for longer.
"Even if U.S. central bankers are likely to be pleased about
the interpretation of their measures, it is not good news for
the dollar," Commerzbank analysts commented.
"If one expects the domestic purchasing power of the dollar
to be eroded more quickly (as that is what inflation is) it is
difficult to assume that it will maintain its purchasing power
on the FX market in the long run," they argued.
Powell's remarks last week continued a trend lower in the
dollar. The Fed's stimulus to offset the economic effects of the
coronavirus pandemic has driven risk assets higher and hurt the
safe-haven dollar.
"I think what we're seeing is the continuation of the
momentum move lower in the dollar that began in Q2. The Fed
message last week just reinforced that," said Daniel Katzive,
head of FX strategy for North America, BNP Paribas.
The yen JPY= weakened by 0.48% to 105.84 per dollar on the
view that Japan's next leader will stay the course on the
'Abenomics' economic revival program. The yen climbed to 104.195
on Friday after Shinzo Abe's resignation as prime minister for
health reasons.
In recent weeks the yen has not strengthened proportionally
to the weakening dollar.
"Dollar-yen remains a real sore thumb sticking out in the
wrong direction. There's clearly some flow-based explanation,
but I don't think we know exactly what's driving it. I do think
that fundamentals will ultimately prevail and you will see a
breakdown in that pair," said Katzive.