Dollar Drops Versus Yen Amid Skepticism of April U.S. Rate Hike
The dollar halted a two-day advance against the yen as comments by Federal Reserve officials suggesting the central bank may raise interest rates as soon as next month failed to boost the greenback’s appeal.
The U.S. currency weakened versus most of its major peers as traders saw only a 10 percent probability of a U.S. rate hike in April, even after San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart said recent economic data may justify additional policy tightening. A gauge of the dollar has weakened 1.7 percent since policy makers softened their outlook for the pace of interest-rate increases this year at their meeting on March 16. Neither Williams nor Lockhart vote on the Federal Open Market Committee this year.
“I don’t think any short-term comments would change the fact that the FOMC decision last week was clearly taking a dovish structural view,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “Amid some volatility, the dollar will be in a downward trend” in the next month, he said.
Three-Day Gain
The greenback was little changed at 111.95 yen at 1:37 p.m. in Tokyo, following a 0.5 percent gain over the previous two days. The U.S. currency fell 0.1 percent to $1.1251 per euro.
The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, was little changed at 1,189.18, halting a two-day gain.
The Fed’s post-meeting statement prompted traders to scale back expectations for a hike in June to 42 percent on Monday, down from a 52 percent probability seen a week earlier, futures contracts show. Macquarie Bank, one of the world’s top 10 currency forecasters, reversed last week its three-month forecast for the dollar after the Fed halved projections for how many times it would hike rates this year from four times in December, citing the potential impact from weaker global growth on the U.S. economy.
“The dollar declines we saw last week were justified in terms of the Fed’s communication, but maybe that communication was poor given what we’ve heard since from Fed officials,” said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney. “The dollar can get some respite from here, though I’m not sure that the market is going to run far with this,” since more focus will be on any comments from Chair Janet Yellen, and voting members William Dudley and Stanley Fischer, he said.
