Dollar Falls as Traders Trim Bets on September Fed Rate Increase

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The dollar fell for the first time in five days after minutes from the Federal Reserve’s latest policy meeting led traders to reduce bets that the central bank will increase interest rates in September.

Most meeting participants “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” according to minutes of the July 28-29 Federal Open Market Committee session, released Wednesday in Washington.

“It does appear that the market is focusing on the dovish parts of the minutes,” Jennifer Vail, head of fixed-income research in Portland, Oregon, at U.S. Bank Wealth Management, said by phone. “They’re really focusing on the inflation component -- the need to see more data to have the confidence for inflation to get back to 2 percent.”

The Bloomberg Dollar Spot Index fell 0.3 percent to 1,208.06 at 5 p.m. New York time, its first decline since Aug. 12. The dollar fell 0.9 percent to $1.1120 against the euro and 0.5 percent to 123.80 yen.

Futures show traders see about a 36 percent probability the Fed will raise its benchmark rate at its Sept. 16-17 meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. That’s down from about 50 percent before the minutes were released. The Fed has kept its key rate in a range of zero to 0.25 percent since December 2008.

Awaiting Inflation

“The minutes convey a Fed that is looking to hike, but will be very cautious,” Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California, said by e-mail. “It is bearish because you can read into it that they may require even more data to make the next hike after liftoff.”

Data earlier Wednesday showed growth in the world’s biggest economy has yet to translate into quicker inflation. The consumer price index climbed 0.1 percent in July after a 0.3 percent gain the month before.

“You don’t see enough inflation to convince the market that they’re going to move in September,” said Nick Kalivas, a senior equity product strategist at Invesco PowerShares, which has about $97 billion in its funds. “The Fed was one of the potential dynamics that could get people reinvigorated about the dollar rallying, and as you read through this and as you see conditions, you don’t see a hard support for that.”