The dollar fell the most in more than one month as US Federal Reserve policymakers signaled the pace of interest-rate increases would be gradual.
The greenback depreciated after minutes on Wednesday from the Federal Open Market Committee’s meeting last month said that a liftoff next month “may well become appropriate” while signaling a shallow path for any increases next year. The euro rebounded from a seven-month low and the yen extended gains after the Bank of Japan refrained from expanding stimulus.
“The market’s beginning to look beyond December to the trajectory of Federal Reserve policy during 2016,” London-based Rabobank International senior foreign-exchange strategist Jane Foley said. “The dollar can still rally, but I don’t think we’re going to see the kind of momentum that we saw at the start of the year against the euro.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, fell 0.7 percent to 1,227.44 as of 5pm in New York, the largest drop since Oct. 14. It reached the highest level in more than a decade on a closing basis on Wednesday.
The US dollar weakened 0.7 percent to US$1.0734 per euro after appreciating to US$1.0617 on Wednesday, the strongest since April. The US currency dropped 0.6 percent to ¥122.87, halting a three-day advance.
The kiwi headed for its biggest advance this month and the Aussie rose as investors sought out the highest-yielding assets.
“What’s important now is not the December move, that’s priced in, it’s what the path is going to be after that,” Boston-based State Street Global Markets head of macro strategy for North America at Lee Ferridge said.
The greenback has climbed against all of its 16 major peers this year as a strengthening US economy underpinned speculation that the Fed will raise interest rates for the first time in almost a decade.
Analysts are forecasting its gains versus the yen and the euro have already peaked, with the median predictions from Bloomberg surveys calling for the dollar to hold at about ¥123 by year-end and weaken to US$1.08 per euro.
The likelihood of higher rates by year-end is 66 percent, futures show. The probability the Fed will act next month has increased from 50 percent at the end of last month. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
“The market has grown comfortable with the idea of a dovish hike,” said Mark Dowding, a London-based partner and money manager at BlueBay Asset Management, which oversees US$60 billion.
The US unit continued to face headwinds from emerging market currencies, with the upbeat Fed outlook providing dealers with confidence to buy risker, higher-yielding assets.
The New Taiwan dollar rose NT$0.13 to NT$32.73 on Friday.
The South Korean won rose 0.7 percent, Indonesia’s rupiah added 1.2 percent and the Malaysian ringgit put on 1.4 percent. The Australian dollar and Thai baht also pushed higher.
The British pound fell 0.6 percent to US$1.5199 on Friday, pushing it into a loss for the week.
Two days earlier, a Deutsche Bank AG trade-weighted measure of the pound reached its highest since Aug. 18, based on closing prices.
Additional reporting by AFP
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