Dollar Falls for Second Day as Fed Officials Stress Gradual Path

  • Central bank policy makers discuss plans for interest rates
  • Commodity currencies weaken as oil extends drop on inventories

The dollar dropped for a second day after Federal Reserve policy makers shied away from reaffirming investors’ expectation of an interest-rate increase next month.

Currency investors, who’ve been accumulating bets on a stronger dollar this month, were disappointed when New York Fed President William C. Dudley said policy should be tightened only gradually after interest rates are increased for the first time since 2006. Commodities currencies weakened, including the Canadian dollar and Norway’s krone, on speculation increasing energy supplies will extend a global crude-oil rout.

“Dudley is showing he is still on the fence about December,” Matt Derr, a foreign-exchange strategist in New York at Credit Suisse Group AG, said by e-mail. “The market is waiting for the next catalyst to drive the next leg of dollar strength.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major counterparts, fell 0.3 percent to 1,226.09 as of 5 p.m. New York time. The gauge has rallied 1.3 percent this month and reached the strongest level Tuesday in more than a decade.

Fed Watch

Futures contracts signal a 64 percent chance that Fed officials will raise their target rate by year-end. The next policy announcement is scheduled for Dec. 16. The calculations assume the rate will average 0.375 percent after the first increase, versus the current target range of zero to 0.25 percent.

Fed Bank of St. Louis President James Bullard, one of several Fed officials speaking on Thursday, said keeping rates near zero is no longer needed with jobs and inflation gains near the central bank’s goals, while Fed Bank of Richmond President Jeffrey Lacker said caution is warranted in policy responses to financial markets. 

Canada’s currency weakened toward an 11-year low as oil, one of the nation’s largest exports, declined to a two-month low after U.S. crude stockpiles increased. The seven biggest losers among major currencies against the dollar this year are commodities producers, as a global supply glut and an economic slowdown in China marked the end of the resource boom.

"Commodity currencies still retain a bearish outlook," said Alessio de Longis, a money manager at the global multi-asset group of New York-based OppenheimerFunds Inc. "The currencies’ moves have been so violent I wouldn’t be surprised if we get several months of consolidation."

The Canadian dollar lost 0.2 percent to C$1.3291 per U.S. dollar, approaching the weakest June 2004. The krone dropped 0.6 percent to 8.6614, reaching the lowest since April 2002.

Before it's here, it's on the Bloomberg Terminal.