Dollar Falls to Nine-Month Low on Fed's Global Headwinds Concern

  • Weekly jobless claims climb before March employment report
  • Greenback is set for biggest monthly decline since 2010

A gauge of the dollar fell to a nine-month low after comments from Federal Reserve Chair Janet Yellen reflected concern that global headwinds may restrain the U.S. economy, dimming the prospects for higher interest rates.

The U.S. currency was poised for its biggest monthly loss since September 2010 after the Fed chief said Tuesday that the central bank should “proceed cautiously” in raising rates, damping the allure of dollar-denominated assets. The greenback extended losses after a report showed an increase in weekly jobless claims before the government issues its March employment report Friday.

“Yellen’s comments this week have increased downside risk to the dollar,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. “In terms of the dollar, these numbers and even tomorrow’s payrolls number may have a somewhat limited impact.”

The greenback has fallen against all its 31 major counterparts in March, with the biggest declines against the currencies of commodity-producing nations such as Brazil’s real, Russia’s ruble and Australia’s dollar. This reflects a shift from the past two years when the U.S. currency rallied as the Fed moved toward higher rates while other global central banks deployed negative rates and boosted bond-buying stimulus.

The Bloomberg Dollar Spot index, which tracks the currency against 10 major peers, dropped 0.2 percent as of 3:11 p.m. New York time, reaching the lowest level since June 29. The U.S. currency is headed for its biggest quarterly decline in 5 1/2 years, while a gauge of 20 emerging-market currencies heads for the best monthly gains in at least 18 years.

A measure of the greenback’s momentum, known as the 14-day relative strength indicator, fell below 30. Levels below 30 are viewed by some traders as a signal the currency has reached extreme levels and may reverse.

U.S. jobless claims rose more than forecast in the week through March 26, a sign of more moderate labor market progress. Fed policy makers meeting earlier this month in Washington cited “additional strengthening of the labor market” even as they held off on raising the benchmark interest rate.

Traders cut the odds of the Fed raising rates at its April 26-27 meeting to zero, from 56 percent at the end of last year, according to data compiled by Bloomberg based on fed fund futures. The chance of an increase by June declined to 22 percent from 75 percent.

“The key reason behind this dollar softness is that the Fed seems to be more dovish,” said Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV. “What the market has learned over the past few years is that whenever you’re betting on the Fed to start an aggressive tightening cycle, that was the wrong bet.”

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