Dollar Falls to 7-Week Low as Outlook for Fed Rate Increase Dims

  • Likelihood of central-bank move remains below 50 percent
  • Investors await minutes of the Fed’s July policy meeting

The dollar weakened to almost a seven-week low as investors became less confident about a 2016 interest-rate increase before the release of the minutes of the Federal Reserve’s July meeting.

The chance of the Fed raising rates before year-end has fallen as stagnant retail-sales data on Aug. 12 cast doubt about the strength of the U.S. recovery. The odds, as measured by futures data tracked by Bloomberg, had started to climb after a better-than-forecast jobs report the previous week, supporting the dollar.

“The market really has not moved to price in any more chance of Fed tightening,” Daniel Katzive, head of foreign-exchange strategy for North America at BNP Paribas SA, said by phone. “That’s sapped the dollar of any momentum.”

Still, he expects the currency to be supported by hawkish signals from the U.S. central bank. The Fed is due Aug. 17 to publish the minutes of its July 26-27 meeting, when it upgraded its assessment of the U.S. economy while signaling it’ll take a gradual approach toward tightening policy. Traders will look for signals about future policy when Fed Chair Janet Yellen speaks next week at a meeting of global policy makers in Jackson Hole, Wyoming.

A gauge of the greenback slumped almost 5 percent this year in the absence of signs that Fed policy is set to further diverge from that of the Bank of Japan and European Central Bank, which are boosting monetary stimulus as they seek to spur flagging growth.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, fell 0.2 percent as of 5 p.m. in New York. On Aug. 12, it reached the lowest since June 24, the day the U.K. announced it had voted to leave the European Union. The yen strengthened 0.1 percent to 101.26 per dollar.

“The dollar could remain in an overall consolidative pattern until there’s more clarity around Fed policy," said Eric Viloria, a currency strategist at Wells Fargo Securities LLC in New York.

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