The US dollar on Friday fell to a five-week low, remaining under pressure for a third straight session after the US Federal Reserve quashed hopes for a further currency bull run by keeping a gradual rate-hiking pace.
“At the moment, the [US] dollar remains in correction mode, which we had fully expected,” London-based Forex.com market analyst Fawad Razaqzada said. “But we remain fundamentally bullish on the greenback, because the Fed remains the only major central bank which is actively tightening its policy.”
James Chen, head of research at Forex.com in Bedminster, New Jersey, also said that the pace of Fed rate hikes and policy outlooks can change extremely quickly.
He said that only a few weeks before Wednesday’s Fed announcement, expectations for a hike this month were exceptionally low.
However, Fed officials made a concerted effort to warn the markets of the high likelihood of a Fed rate hike and expectations then soared to a near-certainty, Chen said.
“This same rapid change in expectations could very likely occur again at any time, assuming the [US President Donald] Trump administration’s fiscal plans begin to take root.”
The surge in the US dollar in the weeks after the US election in November last year was largely due to expectations of increased spending.
However, a higher US budget deficit is likely to dampen that view.
Jane Foley, senior foreign-exchange strategist at Rabobank in London, said she sees the risk that any additional spending might not happen until the end of the year, or potentially next year.
“That disappointment over the reflationary outlook could weigh on the [US] dollar in the coming months,” she said.
In late trading on Friday, the US dollar index slipped 0.1 percent to 100.30.
The index is down about 1 percent for the week and 1.2 percent since the Fed raised rates on Wednesday.
In Taipei, The New Taiwan dollar on Friday rose against the greenback on foreign fund inflows, gaining NT$0.031 to close at NT$30.626. For the week, the NT dollar is up 1.3 percent against the US dollar from last week’s NT$31.036.
Foreign institutional buying in the local equity market on Friday weakened the US dollar throughout the session, causing it to fall for the third day in a row, dealers said.
Against the yen, the US dollar fell to a two-week low and at 112.68 yen.
The euro, meanwhile, fell against the US dollar after a poll showed far-right anti-EU French politician Marine Le Pen extending her lead over centrist Emmanuel Macron in the first round of France’s presidential elections.
The euro on Friday fell 0.2 percent to US$1.0740, but was up 0.4 percent from last week’s US$1.0698.
Additional reporting by CNA