- Greenback declines versus yen, fluctuates versus major peers
- U.S. currency is on pace to post its worst year since 2007
The dollar halted a two-day advance against the yen as investors reassessed the outlook for U.S. monetary tightening before this week’s speech by Federal Reserve Chair Janet Yellen.
The U.S. currency fluctuated against its 16 biggest counterparts before Yellen speaks Aug. 26 at an annual symposium in Jackson Hole, Wyoming. A gauge measuring the performance of the dollar traded close to a three-month low reached last week and left this year’s loss at 5.1 percent, on track for the worst year since 2007.
Investors’ sentiment has shifted back and forth in recent weeks on how aggressive the Fed will be in its approach to monetary tightening after it raised borrowing costs in December for the first time since June 2006. On balance, the dollar’s weakness this year reflects a dimming outlook for the U.S. central bank to raise interest rates and diverge from increased monetary stimulus in Europe and Asia.
“The way investors are starting to get biased right now is that yes, maybe we get a little bit of a boost to the dollar from this one hike this year, but if the longer-term picture is still relatively benign, this supports risk sentiment” and works against the dollar, Vassili Serebriakov, a foreign-exchange strategist at Credit Agricole CIB in New York, said in a Bloomberg TV interview. “The bias is still for Yellen to be quite dovish, and if there’s a risk of a surprise, maybe it’s a little less dovish than more dovish.”
The greenback weakened 0.1 percent to 100.24 yen as of 5 p.m. in New York. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.1 percent.
Traders are pricing in a 26 percent chance the U.S. central bank will hike rates at its Sept. 20-21 meeting, and and a 54 percent probability of a boost by year-end, based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase.
“The market believes that Yellen will not give any signal about the timing of the Fed’s next rate rise at Jackson Hole,” said Mansoor Mohi-uddin, a strategist at Royal Bank of Scotland Group Plc in Singapore. “This may keep the dollar capped this week, but we think a strong dollar rally is coming” as Fed officials including Fischer have signaled the prospect of renewed tightening this year.