Dollar Heads for Worst Week in Two Months Before Payroll Report

  • Some investors `did a 180' on dollar positions: Mizuho's Jones
  • Traders cut rate-increase odds in 2016 to 54% vs 80% in March

The dollar headed for its biggest weekly decline in almost two months on speculation the Federal Reserve will maintain a gradual pace for raising interest rates whatever Friday’s payroll report says.

The greenback has fallen against all its 16 major peers this week as Fed Chair Janet Yellen reiterated that global headwinds may restrain the U.S. economy. Traders have cut the odds of a rate increase this year to 54 percent, from as high as 80 percent in March, even as a measure of whether data is beating forecasts rose to the highest in 14 months. U.S. employers added more than 200,000 jobs for a second month in March, a Bloomberg survey of economists has forecast before the release on Friday.

“I sense some market participants did a 180-degrees on dollar positions,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Yellen was more dovish than many had expected. The dollar will probably remain weak, but I don’t expect it to fall out of bed. Forecasts for jobs data are still relatively upbeat.”

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, was little changed on Friday at 1182.24 as of 12:02 p.m. in London and set for a weekly slump of 1.6 percent, the biggest drop since the period ended Feb. 5. The dollar fell 0.3 percent to 112.19 yen on Friday, and weakened 0.3 percent to $1.1410 per euro.

Fed Voices

If the economy stays on the current trajectory, “then I think we are going to continue with the gradual normalization of monetary policy,” New York Fed President William Dudley said on Thursday. The Fed doesn’t want higher inflation without higher wages, said Williams, who is a voting member of the Federal Open Market Committee this year.

“I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Yellen said Tuesday in a speech to the Economic Club of New York.

Policy makers have said they are concerned a stronger dollar will constrain U.S. growth. Bloomberg’s dollar gauge jumped 9 percent last year, after advancing 11 percent in 2014. The index fell 4.1 percent in the first quarter, the worst performance since September 2010.

“We do not expect a significant turnaround for the dollar” at the start of the second quarter, BNP Paribas SA strategists in New York including Daniel Katzive and Vassili Serebriakov, wrote in a note to clients. “Markets have already nearly fully priced out Fed tightening for 2016.”

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