Dollar Slide Pauses as Global Central Banks Cue Up More Easing

Singapore Dollar Falls After Surprise Easing
  • Greenback index is down 4.2 percent this year after 2015 surge
  • Policy makers in Singapore, Canada, Japan on an easing path

The dollar’s 2016 slump is starting to meet some resistance.

The U.S. currency, down 4.2 percent this year, inched higher Thursday following its biggest one-day gain in three weeks as central bankers abroad seek to limit further gains in their currencies versus the greenback. Singapore unexpectedly moved to a neutral policy of zero percent appreciation in the exchange rate this week, while the Bank of Canada has warned that the loonie’s more-than-10 percent gain since the middle of January is starting to hurt the economy, and Japanese officials are trying to talk down the yen, the best performing major currency this month.

This year’s dollar weakness, fueled by cautious comments from the Federal Reserve regarding the pace of rate increases in the U.S., poses a problem for overseas central banks, which favor a stronger greenback to enhance the international competitiveness of domestic companies. Atlanta Fed President Dennis Lockhart said Thursday that patience on U.S. rates is warranted.

“Some of these countries are going to be hard pressed to not intervene,” said Jennifer Vail, head of fixed-income research in Portland, Oregon, at U.S. Bank Wealth Management, which oversees $125 billion. “In a slow-growth environment, there’s only so long you can sustain a stronger currency.”

The dollar was little changed as of 8:20 a.m. in Tokyo Friday after advancing less than 0.1 percent to $1.1268 per euro in New York. Bloomberg’s dollar index, which tracks the greenback versus 10 peers, was unchanged after gaining 0.1 percent Thursday. The currency was at 109.37 yen from 109.40.

‘Depressing News’

The surprise move by Singapore’s central bank came two days after the International Monetary Fund warned of the risk of negative shocks to the global economy. The IMF cut its world economic expansion forecast to 3.2 percent this year, down from a projected 3.4 percent in January, it said April 12 in a quarterly update to its World Economic Outlook.

“Devaluing the dollar while forcing the currencies of weaker economies stronger does not make sense and is counterproductive for the world,” said Stephen Jen, the co-founder of hedge fund SLJ Macro Partners LLP and a former IMF economist."

In the U.S., the Fed has pared projections for the pace of interest-rate increases, citing concern about global growth and domestic inflation. Atlanta Fed President Lockhart said Thursday that he doesn’t think a rate hike in April would be appropriate and that the Fed has more work to do on inflation after a report showed consumer prices rose less than forecast last month.

For Kit Juckes, a global strategist at Societe Generale SA, the recent setback in the dollar could be just a pause before international developments spur the next leg of the rally.

“The IMF spring meeting continues to send out depressing news at a steady pace,” said London-based Juckes. “The dollar rally will come more from economic weakness elsewhere than the strength in the U.S. economy.” 

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