Dollar Holding Near 10-Month Low as Economic Slowdown Backs Fed

Stocks Tumble: Is This the Start of Another Leg Down?
  • Global central banks on hold dims policy divergence as driver
  • U.S. currency drop follows BOJ's unchanged stimulus surprise

The dollar reached the lowest level since June as weaker-than-forecast economic growth supported the Federal Reserve’s decision to keep monitoring data before tightening monetary policy again.

The greenback weakened versus all major peers on Thursday after data showed U.S. gross domestic product expanded in the first quarter at the slowest pace in two years. The currency also fell as the yen surged after the Bank of Japan maintained its record stimulus, surprising traders who expected additional easing. The Fed left interest rates on hold for the third straight meeting, while policy makers at the Reserve Bank of New Zealand kept their key rates unchanged, even as they signaled the possibility of further policy easing.

“This GDP number, while it’s certainly important, may be taking a backseat to some of the other headlines coming from central banks around the world,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. “We’re seeing the dollar down against most of its major rivals.”

After a two-year, 20 percent rally, the greenback has declined 5.4 percent this year on speculation the central bank will be less aggressive raising interest rates than currency traders expected. That’s dimmed the outlook for policy divergence compared with central banks overseas.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 counterparts, was little changed at 1,167.10 as of 6:51 a.m. Singapore time Friday, after falling 1 percent the previous session to 1,166.54, the lowest level since June 18. The U.S. currency fell 3 percent Thursday against its Japanese counterpart, the most since May 2010, and was at 108.09 yen.

Hedge funds and other large speculators swung to betting on dollar weakness versus eight major currencies as of April 19 for the first time in almost two years. Positions that benefit from losses by the U.S. currency exceeded those that benefit from a rally by a net 21,567 contracts, a report from the Commodity Futures Trading Commission showed.

The dollar is forecast to strengthen to $1.10 per euro and 113 yen by mid-year, according to the median estimates in Bloomberg surveys of analysts.

U.S. economic growth was restrained as American consumers reined in spending and companies tightened their belts in response to weak global financial conditions and a plunge in oil prices before the recent rebound. Investors were weighing a Fed policy statement that signaled reduced central-bank worry over global headwinds along with concern that the domestic economy is slowing.

“Divergence in favor of the dollar isn’t going to come from the BOJ or European Central Bank easing,” said Robert Sinche, a global strategist at Amherst Pierpont Securities LLC in New York. “It’s going to have to come from a Fed hike, but there’s no clear indication yet that it’s on the horizon.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE