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Goldman Sachs Asset Management is betting a rally that propelled the dollar to a seven-week high will fizzle.

The money manager expects the Federal Reserve to forgo an interest-rate increase this week even after a report Friday showing U.S. inflation rising faster than economists forecast drove the greenback higher. Parent Goldman Sachs Group Inc. cut its forecasts for gains in the U.S. currency versus the yen, saying it is “not optimistic” about the outcome of the Bank of Japan’s policy meeting this week. Hedge funds and other speculative investors trimmed bullish dollar positions last week. The dollar fell against most of its counterparts Monday.

“Over the medium to longer term, we continue to expect U.S. dollar weakness versus G-10 and emerging-market currencies,” the asset-management firm said in a note to clients dated Sept. 16. “We expect no move in September but anticipate the Fed will signal that a rate hike is still possible this year, while the pace of tightening will be even more shallow and gradual than previous Fed projections.”

The Bloomberg Dollar Spot Index fell 0.3 percent at 6:50 a.m. in London from Friday, when it jumped 0.7 percent to close at its highest level since July 28.

Aussie, Pound

The Australian dollar rose 0.7 percent to 75.42 U.S. cents, while the pound climbed 0.3 percent to $1.3047. The yen advanced 0.2 percent to 102.05 per dollar and the euro gained 0.1 percent to $1.1171. Japanese markets are closed Monday for a public holiday.

Taiwan’s dollar jumped 0.8 percent to NT$31.435 against its U.S. counterpart and Singapore’s dollar rose 0.3 percent to S$1.3637. The South Korean won was little changed after declining as much as 0.7 percent as the nation’s markets opened after a three-day holiday.

Goldman Sachs Asset Management said it reduced bets seeking to profit from declines in Asian currencies, including the Singapore and Taiwanese dollars as well as the won, after the latest Chinese data showed the world’s second-largest economy had stabilized.

Hedge Funds

Hedge funds and money managers cut net bullish positions on the dollar for the week ended Sept. 13, according to data from the Commodity Futures Trading Commission. Bets that the dollar would rise outnumbered bearish positions by 113,195 contracts, down from 119,066 in the previous period.

Futures imply a one-in-five chance of Fed action Wednesday and a 55 percent chance by year-end.

The BOJ decides policy the same day this week, with forecasts for action by analysts ranging widely. That is complicating the job of currency traders trying to position for the event. Japan became the epicenter of a global bond selloff this month, amid speculation the central bank will pull back from buying long-term bonds after Governor Haruhiko Kuroda ordered a comprehensive review of its easing program.

‘Broad Range’

“The U.S. dollar is going to trade in a broad range, capped by Fed inaction on the one side, and the potential for heightened volatility on the other,” said Daniel Been, head of foreign exchange research at Australia & New Zealand Banking Group Ltd. in Sydney. “The BOJ and the potential for them to drive a larger global steepening is the bigger event.”

Goldman Sachs, the investment bank, is taking the view that Japan’s central bank “will continue to ease at upcoming meetings,” likely by further cuts to the deposit rate, but it won’t be enough to reverse the “adverse dynamic” created in January, with the introduction of negative interest-rate policy. The Wall Street firm cut its three-month forecast for the dollar to 108 yen from 115 yen, and its 12-month prediction to 115 yen from 125 yen.

“Focus at the BOJ has shifted toward making the existing policy stance sustainable, as opposed to adding stimulus to meet the inflation target,” Goldman Sachs analysts led by Robin Brooks wrote in a note dated Sept. 18. “We are not optimistic.”