The dollar logged its worst quarterly performance in years as the Federal Reserve slowed the expected pace of interest rate hikes, citing worries about the potential domestic impact of anemic growth abroad.
As measured by one gauge, the buck is about to register its worst performance during the first quarter of a year since 2008, when the index fell 6.4%, and its worst overall calendar-quarter performance since Sept. 30, 2010, when the gauge dropped about 8.5%.
The ICE U.S. Dollar index DXY, -0.02% a measure of the dollar’s strength against a basket of six rival currencies, slipped 0.3% Thursday to 94.5610. Its quarterly performance clocked in at a 4.2% loss.
Dollar weakness has been concentrated against the yen during the quarter, with the dollar losing about 6.8% against the Japanese currency.
Despite a steady improvement in U.S. economic data throughout the quarter, the dollar’s performance was influenced by what Citigroup’s Steve Englander called “an extended move downward in terms of how the Fed was positioning itself for future rate hikes.”
The Fed’s dovish message, as well as the perception that the European Central Bank and Bank of Japan wouldn’t be able to deliver as much monetary easing as the market expected, both contributed to the dollar’s weakness, Englander said.
The downshift in expectations over the quarter was best exemplified by the drop in 10-year yields, which started the quarter at 2.25% TMUBMUSD10Y, +1.84% and were on track to finish around 1.78%, a 47-basis-point drop. The 10-year yield is heavily influenced by investors’ long-term expectations for the rate of inflation.
In Thursday’s session, the bigger moves occurred against the euro, with the dollar EURUSD, -0.0439% dropping to $1.1389 late Thursday in New York, compared with $1.1339 late Wednesday in New York. The shared currency briefly touched $1.1415, its highest level since October.
The euro rose Thursday after data showed inflation in the eurozone inched up in March. A flash estimate from Eurostat, the European Union’s statistics agency, showed annual inflation in the eurozone was minus 0.1% in March after negative 0.2% in February. The data show the European Central Bank still has some work to do to lift inflation in the region. The euro added to gains against the buck after an employment report showed the number of Americans applying for unemployment benefits hit its highest level in two months last week, rising 11,000 to 276,000.
The U.S. dollar USDJPY, -0.22% turned higher against the Japanese yen, rising to ¥112.50 late Thursday in New York, from ¥112.36 late Wednesday in New York, after the often volatile Chicago PMI came in at 53.6 for March, up from 47.6 in February.
In a speech Tuesday, Yellen said global economic and financial uncertainty pose risks to the U.S. economy and justify a slower path of rate increases.
Now, investors are shifting their focus to major events Friday, including U.S. March ISM manufacturing index and March employment report.
In other trading, the British pound GBPUSD, -0.2089% weakened 2.5% against the dollar over the course of the quarter as worries about a possible U.K. exit from the European Union weighed on demand. The British currency traded at $1.4380 late Thursday in New York, little-changed from its late-Wednesday level.
Source: Market Watch
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