Dollar Drops as Traders See Fed Taking It Slow on Rate Increases

  • Currency falls from 7-month high after Fischer, Yellen speak
  • Greenback in ‘short-term pullback,’ Faraday Research says

Dollar Maintains Climb on Fed Bets

The dollar fell from its highest level in seven months on speculation that the Federal Reserve will maintain a go-slow pace of raising interest rates even if the central bank tightens policy later this year.

The U.S. currency weakened against most of its major peers as Fed Vice Chairman Stanley Fischer outlined factors holding down growth and interest rates in a speech in New York Monday. Fed Chair Janet Yellen on Oct. 14 outlined the argument for keeping monetary policy easy without taking an interest-rate hike off the table this year, potentially dimming the greenback’s allure.

“The dollar is pausing here after a couple weeks of positive performance,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Yellen’s comments “were consistent with the idea of a potentially lower trajectory for interest rates over the medium and longer term, and ultimately I think it’s something that could cap the dollar’s upside.”

The dollar has fallen about 2.5 percent this year as the Fed held off on tightening monetary policy. The greenback’s losses have narrowed in recent weeks on speculation that the central bank is getting closer to its first rate hike since December, prompting hedge funds and money managers to boost net bullish positions.

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major peers, dropped 0.3 percent as of 5 p.m. New York time. It touched a seven-month high on Oct. 13. The greenback fell 0.3 percent to $1.1000 per euro and was 0.3 percent lower at 103.89 yen.

The dollar gauge’s relative strength index, or RSI, suggests the currency may have risen too far, too fast. The 14-day RSI was near 63 on Monday after reaching almost the highest since January last week. Some traders see a level of 70 or above as a signal that gains may have become overdone.

“We’re looking at this as a short-term pullback after some of the big moves,” said Matt Weller, senior market analyst at Faraday Research in Grand Rapids, Michigan.

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