Citigroup Says Dollar Drifts in `No-Man's Land' as Fed on Hold

Updated on
  • Greenback heads for weekly drop as Yellen cites global turmoil
  • Futures traders pare bets on interest-rate increase this year

The dollar headed for its second weekly drop after the Federal Reserve’s decision to hold off on raising interest rates fueled concern about global economic growth.

The greenback fell against most of its major peers after policy makers kept borrowing costs at a record low Thursday, citing low inflation, an uncertain outlook for global growth and recent financial-market turmoil. It slid most against the currencies of commodity-producing nations, including New Zealand, Australia and Canada.

“The dollar right now, certainly within the Group of 10, at best is in no-man’s land,” Steven Englander, global head of Group of 10 currency strategy at Citigroup Inc. in New York, said by phone. “It still could see some weakening pressures.”

The dollar was little changed at 119.98 yen as of 11:01 a.m. New York time, extending its weekly drop to 0.5 percent. The greenback rose 0.5 percent to $1.1376 per euro, after tumbling 1.3 percent Thursday.

The Bloomberg Dollar Spot Index was stable at 1,194.59, poised for a 0.8 percent decline this week.

“The main drivers of the turbulence have been concerns about the global outlook,” Fed chair Janet Yellen said Thursday. “There are a lot of cross currents in economic and financial developments that we need to take into account.”

Commodity Currencies

The decision to hold rates spurred a rally in the currencies of commodity- exporting nations and emerging markets. 

The U.S. currency dropped 0.7 percent against the Australian dollar to 72.28 U.S. cents. It slumped 1 percent to 64.18 U.S. cents per New Zealand dollar and tumbled 0.7 percent to 13.2537 South African rand, having touched 14.0682 on Aug. 24, the strongest level on record.

“We’re seeing a slightly weaker dollar, as you would expect,” said Anne Richards, chief investment officer of Aberdeen Asset Management, which manages $483 billion. “That will be helpful to some parts of the world, which is why you’ve seen a little bit more encouragement come out of some of the emerging markets,” she said in an interview with Bloomberg Television.

Futures trading shows the probability of a Fed rate increase this year dropped to 46 percent from 64 percent the day before the Fed meeting. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase, near the mid-point of the range.

“There’s not much to make you particularly want to love the dollar,” Kit Juckes, a global strategist at Societe Generale SA in London, said in an interview with Bloomberg Television. “There isn’t really a currency out there that I’m particularly enamored with -- the dollar is the winner at the margin.”