Dollar Weakens on Fed Fallout as Brexit Risk Whipsaws Currencies

  • Traders continue to reprice Fed expectations in dollar
  • Pound and euro rally after U.K. vote campaigning suspended

Would Brexit Cause a ‘Massive’ Drop in Markets?

The dollar weakened for a third day, the longest streak in six weeks, as investors cope with political and economic crosscurrents of a slower Federal Reserve tightening pace and a pending vote on Britain’s membership in the European Union.

The greenback fell against most of its major peers as the Fed’s meeting this week showed fewer officials expect the central bank to raise interest rates more than once this year, and policy makers painted a more uneven picture of the U.S. economy. Britain’s June 23 referendum on its EU membership continues to whipsaw the currency market.

"This is a Fed accepting the new normal -- we’re in a world where 2 percent growth is as good as it can get," Kit Juckes, a London-based strategist at Societe Generale SA, said on Bloomberg Television. "There’s a lot of Brexit ‘bremains’ in the market. But I have to say the bigger story is the Fed running out of tools and influence."

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 0.5 percent as of 5 p.m. in New York. The U.S. currency weakened 0.5 percent to $1.1277 per euro and was little changed at 104.16 yen.

The JPMorgan Chase & Co. Group of Seven Volatility Index climbed to 12.79 percent on June 14, the highest since December 2011.

Yen Moves

Japan’s currency weakened briefly after Finance Minister Taro Aso escalated his rhetoric expressing concern about the currency’s surge to a 20-month high. He called for coordination with central banks worldwide to address what he described as disorderly moves in foreign-exchange markets. His remarks underscore the potential for intervention in the currency market should the yen climb on haven demand in the aftermath of the U.K. vote.

The yen rose against all its major peers on Thursday after the Bank of Japan refrained from adding to currency-sapping stimulus and as Britain’s looming EU vote.

“We should see the yen strengthen heading into the EU referendum,” said Eimear Daly, a currency strategist in London at Standard Chartered Plc. “It’s your classic safe-haven currency,” she said, and given the “substantial uncertainty” in world markets, the dollar-yen rate may move lower.

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