Dollar Fluctuates After Worst Drop in 4 Months as Fed Bets Pared

Have all Hopes of a Fed Rate Hike Now Evaporated?
  • Further weakness to come, no rate increase in 2016, BNP says
  • Yellen speech Monday in focus as markets study Fed policy path

A gauge of the dollar was little changed after the biggest loss since February, as traders looked to Federal Reserve Chair Janet Yellen’s comments following weaker-than-forecast payrolls data that doused speculation officials will raise interest rates in the coming months.

The Bloomberg Dollar Spot Index fluctuated after last week’s 1.6 percent decline, which was triggered by a U.S. Labor Department report showing employers in May added the fewest number of workers in almost six years. The gauge had rallied during the previous four weeks, and traders had boosted bullish bets on the dollar to the highest since March. Yellen is due to speak Monday in Philadelphia.

“The market is expecting her to stabilize things and take a more optimistic approach,” said Stephen Casey, a New York-based senior foreign-exchange trader at Cambridge Global Payments, a currency and payments provider. “We’re going to see more of a stable dollar into the fall -- on the whole, the U.S. economy continues to improve.”

Market participants will parse Yellen’s comments for her assessment of the economy and signals about the timing of the Fed’s next interest-rate increase. The dollar rose last month, paring its declines this year, after policy makers including Yellen said higher rates in the coming months look appropriate. The jobs report poured cold water on speculation that tightening monetary policy would bolster the greenback.

Bloomberg’s dollar Index, which tracks the currency against 10 major peers, was little changed as of 10:47 a.m. in New York, after slumping 1.5 percent on June 3, the most since Feb. 3. The dollar traded at $1.1364 per euro, after weakening 1.9 percent in the previous session. It rallied 0.7 percent to 107.32 yen, halting a four-day slide.

“The dollar has further weakness to come,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “Yellen’s speech today will be very important. We think the message from her will be the Fed is worried about the data and, being a central bank that is data-dependent, the backdrop of the U.S. economy is not strong enough to deliver rate hikes any time soon.”

Economists at BNP Paribas are forecasting no Fed rate increases this year, Sneyd said. The bank forecasts the dollar will weaken toward $1.16 per euro by the end of June.

Traders see a 4 percent chance the Fed will raise interest rates by its June 14-15 meeting, down from 30 percent odds a week ago, futures contracts indicate.

Hedge funds and other large speculators increased bullish bets on the dollar by 16,719 contracts in the week ending May 31 to a net long position of 84,149, the highest since the period ended March 22, according to data from the Commodity Futures Trading Commission. Strategists still forecast a stronger dollar for 2016.

The U.S. currency is projected to strengthen to $1.10 per euro and 115 yen by the end of the year, according to surveys of analysts by Bloomberg.

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