- U.S. currency drops against euro, yen and British pound
- Traders reduce bets on Fed interest-rate increase in 2015
The dollar is mired in its longest slide since the market turmoil of August as traders look to speeches from policy makers this week for hints the Federal Reserve may be losing confidence the U.S. economy can withstand an interest-rate increase this year.
The greenback dropped versus the euro, pound and Swiss franc before scheduled remarks from Fed officials, including Esther George, John Williams and James Bullard. Their speeches follow Friday’s jobs report, which showed the U.S. labor market was weaker last month than most economists forecast. The data led traders to bet that Fed officials will wait until 2016 to lift rates.
“They have to stay positive,” said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. “I don’t think they can really afford to blink.”
While economic data have trailed expectations, the U.S. is still outperforming its counterparts and policy divergence will limit the dollar’s losses, he said.
The U.S. currency fell 0.8 percent to $1.1272 per euro as of 5 p.m. in New York. It slipped 0.2 percent to 120.23 yen.
Bloomberg’s Dollar Spot Index, which tracks the currency versus 10 major peers, declined for a fourth day. That’s the lengthiest stretch since Aug. 19-24, when financial markets were being whipsawed in the wake of China’s devaluation.
After holding rates near zero last month amid overseas volatility, Fed officials have emphasized the strength of the U.S. economy and indicated they still expect to raise interest rates this year for the first time since 2006.
The jobs report casts doubt on that assessment. Employers added 142,000 workers in September, below the lowest estimate of economists surveyed by Bloomberg.
Traders pushed out expectations for the first Fed increase. Futures show a 10 percent probability of a boost in October, down from more than 40 percent a month ago. The calculations are based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff, versus the current target range of zero to 0.25 percent. The likelihood of an increase by the Fed’s December meeting has dropped to 35 percent, from almost 60 percent in early September.
“We suspect speakers will be careful todownplay the impact of one soft release on their thinking,” BNP Paribas SA analysts led by Steven Saywell, the global head of foreign-exchange strategy, wrote in a note Tuesday. “Markets were reluctant to price Q4 liftoff even before Friday’s numbers, and are not likely to rebuild pricing in response to this message now.”