When US Federal Reserve policymakers reduced their outlook for the path of interest rates they may have also lowered the trajectory for the dollar.
The US currency fell for a third week against the euro and reached a seven-month low against the British pound before economic reports next week that are forecast to show halting growth. Futures prices show reduced odds of a central bank interest-rate increase by September, dampening demand for US dollar-denominated assets.
“The tone of the Fed took a lot of people by surprise,” Lennon Sweeting, a Toronto-based dealer at the broker and payment provider USForex Inc, said by phone. “The Fed isn’t taking much of an aggressive stance. The dollar sold off, a lot of people are trying to play catch-up because of that.”
The US currency slumped 0.8 percent to US$1.1352 per euro this week in New York and dropped 0.6 percent to ￥122.71. It reached US$1.5930 per pound, the lowest level since Nov. 12.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 of its major peers, fell 0.8 percent to 1,166.76.
Fed officials at a policy meeting on Tuesday and Wednesday cut their median estimate for the federal funds rate for the end of next year to 1.625 percent, compared with 1.875 percent in March, and also lowered their 2017 outlook. The central bank has kept its rate target at virtually zero since December 2008 to bolster the economy.
Meanwhile, the British pound outperformed this week, with analysts at the world’s biggest foreign- exchange trader forecasting room for further gains, at least versus the euro.
With negotiations between Greece and European officials crumbling and the indebted nation’s future in the euro hanging in the balance, the allure of the relatively stable sterling has come to the fore. Data pointing to an economic recovery firming up in the UK and the Bank of England’s moves toward raising interest rates are adding to the pound’s strength.
“Sterling offers a good alternative to the euro,” said Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London, ranked as the largest currency dealer in an annual Euromoney Institutional Investor PLC poll. “Sterling fixed-income is comparatively a favorite option for European investors.”
The pound appreciated 1.3 percent this week to ￡0.7145 per euro at 5:47pm in London on Friday and reached ￡0.7126, its strongest level since May 28. Sterling rose a second week versus the dollar, climbing 2 percent to US$1.5872. It reached US$1.5930 on Thursday, the highest level since November.
O’Byrne said the pound could strengthen through ￡0.70 per euro in the next six months.
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