Dollar Drops for Second Day as Traders Rule Out June Fed Moveby
Markets see U.S. central bank on hold until at least December
Greenback has weakening bias in near term, Barclays says
The dollar extended its slide for a second day as traders ruled out the possibility that the Federal Reserve will raise interest rates at its meeting next week.
The currency fell against most of its major peers, depressed by tepid U.S. job growth and comments by Fed Chair Janet Yellen that didn’t signal timing for the central bank’s next move. Traders see a zero percent chance the Fed will raise rates at its June 15 meeting, down from 22 percent a week ago, futures contracts indicate. The greenback posted its largest losses against the Brazilian real, Mexican peso and South African rand.
“There’s a bias to trade on the weaker side in the weeks to come” for the dollar, which will probably stay in its recent range, said Andres Jaime, a foreign-exchange and rates strategist at Barclays Plc in New York. “June and July are off the table -- the probability of the Fed deciding to do something in those meetings is extremely low."
The greenback resumed its slide this month as a lackluster jobs report weakened the case for the Fed to boost borrowing costs and dimmed prospects for policy divergence with stimulus increases in Europe and a Asia. The losses follow a rally in May, when policy makers including Yellen said higher rates in the coming months looked appropriate.
The Bloomberg Dollar Spot Index declined 0.4 percent as of 5 p.m. New York time, reaching the lowest level since May 4. The U.S. currency slipped 0.3 percent against the euro to $1.1395 and lost 0.4 percent to 106.99 yen.
There’s a 58 percent probability the central bank will hike by year-end, futures data showed. The Federal Open Market Committee will end two-day meeting on June 15 with a policy statement, revised economic projections and a news conference.
“Until the U.S. economy can make the case for a rate rise, the dollar will be at risk of slipping further,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. The Fed’s “economic projections are going to be key, as well as Ms. Yellen’s news conference -- if they were to sketch an even shallower path of rate rises next week, that would add fuel to the dollar’s selloff.”