Dollar Weakens Toward 10-Month Low on Durables Orders Before Fed

  • U.S. currency extends 2016 drop with central bank meeting
  • BOJ decision comes one day after Fed's April 27 announcement

The dollar fell toward a 10-month low after a report showed orders for U.S. durable goods climbed less than forecast, signaling economic headwinds as the Federal Reserve begins its two-day meeting.

The greenback declined versus most of its major peers as data showed demand for capital equipment remained weak in March, a sign that a diminished growth outlook is impeding investment. The currency slid for the second day as investors awaited the Fed statement Wednesday. While analysts see almost zero chance the central bank will boost borrowing costs this week, policy makers may signal they are ready to raise rates in June. The Bank of Japan will reveal its policy decision on Thursday.

"For the next couple of months, we could see continued weakness" in the dollar, Lindsey Piegza, chief economist of Stifel Nicolaus & Co., said in an interview in New York. "But it’s going to very much depend on the rhetoric that is leading into the June meeting."

Buying the dollar was the winning trade for the past two years as the Fed moved toward higher interest rates while quantitative easing in Europe and Japan, along with a China-led slowdown in emerging markets, weakened rival currencies. The dollar’s rally fizzled as a slowing economy prompted the U.S. central bank to cut growth and inflation forecasts at its last meeting, and set a higher bar for when it may raise rates again.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.5 percent as of 5 p.m. in New York, extending its 4.6 percent decline this year. The U.S. currency added 0.1 percent to 111.31 yen.

"A lot of people really are fed up with dollar trades," Elsa Lignos, a senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in New York, said in an interview on Bloomberg Television. "Positioning has lightened up."

While futures suggest the Fed will keep its main interest rate unchanged at this meeting, traders boosted the probability of an increase in 2016 to 67 percent, from 55 percent a week ago. Japanese Prime Minister Shinzo Abe’s economic adviser said on Tuesday that this week’s meeting is the time for the BOJ to act if it wants to be pre-emptive.

“Market participants are becoming more cautious,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “On the one hand because of the Bank of Japan meeting, and on the other because of the Fed meeting, there is still much uncertainty.”

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