A gauge of the dollar dropped, halting a two-day advance, as comments by Federal Reserve officials suggesting the central bank may raise interest rates as soon as next month failed to boost the U.S. currency’s appeal.
The dollar weakened against most of its major peers as traders saw only a 10 percent probability of a U.S. rate hike in April, even after San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart said recent economic data may justify additional policy tightening. The Dollar Spot Index has weakened 1.7 percent since policy makers softened their outlook for the pace of interest-rate increases this year at their March meeting.
The U.S. currency fell 0.2 percent to $1.1258 per euro. The greenback rose 0.1 percent to 112.06 yen, adding to a 0.5 percent gain over the previous two days. The Fed’s post-meeting statement prompted traders to scale back expectations for a hike in June to 42 percent on Monday, down from a 52 percent probability seen a week earlier, futures contracts show.
Macquarie Bank, one of the world’s top 10 currency forecasters, reversed last week its three-month forecast for the dollar after the Fed halved projections for how many times it would hike rates this year from four times in December, citing the potential impact from weaker global growth on the U.S. economy.
“The dollar declines we saw last week were justified in terms of the Fed’s communication, but maybe that communication was poor given what we’ve heard since from Fed officials,” said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney.