Dollar Falls to Lowest Since November on Weak Inflation Outlook

Updated on
  • Yen strengthens against dollar as Treasury yields decline
  • Morgan Stanley sees greenback declining across the board

The dollar headed for its biggest weekly loss since July after a measure of U.S. inflation expectations dropped to a record low.

The Bloomberg dollar spot index touched its lowest since Nov. 11 after a University of Michigan survey showed long-term inflation expectations dropping to a record. The greenback added to declines seen after the Federal Reserve disappointed traders this week with its failure to make more aggressive forecasts for rate increases. Easing political risk in Europe also doesn’t bode well for the dollar, Morgan Stanley said.

  • “We expect the USD to slip across the board,” Morgan Stanley strategists including Hans Redeker wrote in a note. “The Dutch election result has eased political concerns somewhat and even GBP shows signs of stabilization.”
  • EUR fell sharply in early New York trading as traders reassessed comments from ECB’s Nowotny that earlier helped push the common currency to a five-week high; USD/JPY was trading near a session low of 112.57 as Treasury yields fell; the dollar index was down ~0.1%, pushing the weekly loss to ~1.3%
  • The JPMorgan Global FX Volatility Index ticked up slightly after touching its lowest level since November 2014, even ahead of the French presidential election that has kept investors on edge; decline has come after the Fed damped speculation it will embark on a faster pace of interest-rate hikes this year and as Dutch elections eased concerns about surging populism in Europe
  • The G-20 poses headline risks for the weekend, but not likely from trade, after German Finance Minister Schaeuble said the final G-20 statement may omit the issue
  • Market focus will shift to Fedspeak next week; among others, Yellen speaks Thursday
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