Dollar Falls to Lowest Since June as Fed Rate Sentiment Recedes

BNP Paribas Ups Fed Rate Hike Outlook
  • Post-payrolls gains disappear as traders await more data
  • Markets looks to Yellen’s speech at Jackson Hole conference

The dollar fell to the lowest level since June as speculation fades that the Federal Reserve will raise interest rates this year.

The greenback weakened against all of its major peers, erasing the rally sparked by a stronger-than-predicted U.S. payrolls report released Aug. 5. Traders’ bets that central-bank policy makers will raise rates this year have fallen to 41 percent, down from the 47 percent at the end of last week.

The U.S. currency has dropped more than 4 percent this year with the Fed’s slow path to higher rates dimming the outlook for policy divergence from added monetary stimulus underway in Europe and Japan. While last week’s jobs report initially revived expectations, traders will watch for signals when Fed Chair Janet Yellen speaks later this month at a meeting of global policy makers in Jackson Hole, Wyoming.

"Markets are feeling comfortable that there won’t be any immediate effects from the Fed before Jackson Hole," said Vassili Serebriakov, foreign-exchange strategist at Credit Agricole CIB in New York."It gives some opportunity to sell the dollar against some of these higher-yielding currencies."

Serebriakov expects the the dollar to end the year at $1.10 per euro.

The Bloomberg Dollar Spot Index, which measures the U.S. currency against 10 peers, dropped 0.4 percent as of 5 p.m. in New York, reaching the lowest level since June 23. The greenback fell 0.5 percent to $1.1176 per euro and lost 0.6 percent to 101.29 yen.

About 18 percent of traders expect the Fed to raise rates at its September meeting, based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the next increase. The central bank raised its target to a range of 0.25 percent to 0.5 percent in December, the first increase since 2006.

“Markets don’t sense any urgency for the Fed to move,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “It’s definitely a headwind for the dollar.”

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