FOREX-Yen hits new session highs after Abe resignation; dollar weakened by Fed

(Edits)
* 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, and as news that
Japanese Prime Minister Shinzo Abe will resign pushed the yen
higher.
Japanese stocks fell 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, rose on the news to as strong as 106.025 at
0717 GMT. By 0735 GMT it had eased slightly to 106.06, up 0.5%
since New York's close JPY=EBS .
ING strategists wrote in a note to clients that "Abenomics"
was one of the key factors in yen weakness in previous years.
But, they said, what matters most for the yen is the Bank of
Japan's stance and that it is too early to say whether Abe's
resignation would materially impact the central bank.
"Nonetheless, concerns about the post-Abe shift in the
policy stance add to our bearish USD/JPY outlook (we target
USD/JPY 102 by year-end), though we continue to see USD weakness
as the main driver of the cross," ING added.
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 0726 GMT, the dollar index was at 92.477 =USD , down
0.6% on the day and almost as low as it was in 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 at 0.73135 AUD=D3 .
The U.S. dollar also lost around 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 $1.18975
at 0726 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. Elsewhere, China's offshore yuan rose to new 7-month highs
versus the dollar CNH=EBS .