Dollar Falls After Fed Flags Currency's Gains as Drag on Economy

  • Minutes discuss foreign exchange damping prices, exports
  • Fed notes advance against emerging-market currencies

The dollar fell as minutes from the Federal Reserve’s latest meeting showed officials discussed how the strong U.S. currency was damping inflation and exports.

The greenback slumped versus all but one of its 16 major peers as the release from the Sept. 16-17 gathering noted that the dollar has “strongly appreciated” against emerging-market counterparts and climbed versus currencies of commodity exporters and the main U.S. trading partners. The Fed held rates near zero last month after slowing Chinese growth roiled global markets in August.

An appreciating dollar tends to restrain the U.S. economy by making American products more expensive abroad, while keeping down inflation by making imports less costly.

“It’s clear the Fed’s trying to talk down the dollar a bit,” said Lennon Sweeting, a Toronto-based dealer at the broker and payment provider USForex Inc. “There’s very little confidence inflation will bounce back to 2 percent.”

The dollar fell 0.4 percent to $1.1276 per euro as of 5 p.m. in New York. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 of its major peers, also lost 0.4 percent.

Money has flooded into dollar assets over the past 12 months in anticipation of the Fed’s first interest-rate increase in almost a decade. That’s boosted the central bank’s trade-weighted broad dollar index to its strongest since 2003.

Inflation Goal

Inflation will continue to be below officials’ 2 percent goal in the near term because of the dollar’s strength and declining oil prices, according to the minutes.

“Their comments that a strong dollar may put more downward pressure on inflation is causing the greenback to weaken,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California.

Fed Chair Janet Yellen has said the central bank still expects to raise its benchmark rate this year.

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