Dollar Slumps to 1 1/2-Year Low Versus Yen Following Fed Minutes

Parsing the April Fed Policy Debate
  • March FOMC account shows caution amid debate on April hike
  • Futures show 54% chance of quarter-point boost by year-end

The dollar touched the weakest level since October 2014 against the yen after the release of minutes from the Federal Reserve’s March meeting, when policy makers scaled back expectations for the pace of interest-rate increases in 2016.

The minutes shed more light on officials’ decision to keep rates unchanged last month, after hiking from near zero in December. The account showed policy makers debated an April rate hike, though several officials advocated a cautious approach, partly amid worries that slowing world growth could crimp the U.S. economy expansion.

The U.S. currency plunged March 16 after Fed Chair Yellen said the dollar’s two-year appreciation has weighed on inflation. The central bank also released projections implying two quarter-point rate increases this year, down from four forecast in December. The meeting dimmed the appeal of bets that U.S. monetary policy would diverge from the stimulus efforts of the Bank of Japan and the European Central Bank.

“The interesting thing that stands out was how focused they were on the global economy,” said Tom Kersting, head of Edward Jones & Co.’s fixed-income research department in St. Louis. “The dollar’s been a bit weaker, but that’s really on the back of quite a bit of strength for a long time.”

The dollar fell 0.5 percent to 109.79 yen as of 5 p.m. in New York, after touching 109.34. The greenback dropped 0.1 percent to about $1.14 per euro, approaching the weakest since October.

Dollar Lifeline

The minutes, by flagging a potential April rate increase that traders see as unlikely, may put more focus on the June gathering.

Some analysts had held out the prospect that the minutes might bolster the dollar by reflecting more hawkish views among U.S. policy makers, supporting the case for the Fed to raise rates in 2016 given signs of U.S. economic strength. Evidence of the economy’s resilience was seen last week, in a report showing U.S. employers in March added more workers than projected and wages strengthened.

Yet the minutes served to underscore the bearish view of currency traders since the March meeting, which marked an evolution in the Fed’s policy approach as central bankers gave more weight to the impact of slowing growth abroad on their outlook.

Futures contracts imply a 54 percent likelihood of a quarter-point increase by year-end, down from the 80 percent probability seen the day before the Fed’s decision last month.

“Global growth mentioned a lot shows some caution by the Fed,” Fabian Eliasson, head of U.S. corporate foreign-exchange sales in New York at Mizuho Financial Group Inc., wrote in an e-mail. “That makes the dollar feel a little softer.”

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