The US dollar fell the most since October 2011 after the US Federal Reserve reduced projections for interest-rate increases and expressed concern the greenback’s surge is weighing on exports and inflation.
The US currency fell against all of its 16 major peers as banks including HSBC Holdings PLC said the 20 percent surge since August last year is coming to an end. Economic reports next week may show inflation remains below the Fed’s target, giving the central bank more room to maneuver.
“You always have to be careful with foreign exchange — it can move very quickly and you can’t imply anything from previous trends,” Nomura Securities International Inc senior economist Charles St-Arnaud said by phone from London. “That’s what happened to the US dollar.”
The Bloomberg Dollar Spot Index fell 2.2 percent this week to 1,195.01 in New York. The gauge is up 1.9 percent this month and 5.7 percent this year.
The greenback slumped 3.1 percent this week to US$1.0821 versus the euro, and fell 1.1 percent to ￥120.04.
Hedge funds trimmed their bullish dollar futures positions to the least since December, according to Commodity Futures Trading Commission data. Net futures position betting on a stronger greenback versus eight major peers in this category reached a record 448,675 contracts in January.
Fed policymakers on Wednesday lowered their median 2015 forecast for the federal funds rate to 0.625 percent from 1.125 percent three months ago. The slower projected pace of tightening boosted demand for emerging-market currencies, led by a 4.8 percent rally in Russia’s ruble and 3.8 percent surge in Hungary’s forint.
The change in Fed estimates softened the perceived monetary-policy divergence between the US and the rest of the world, which has been a driver of the US dollar’s ascent.
Central banks from Sweden to Australia have eased policies this year to spur growth and fight deflation by devaluing their currencies, in turn boosting investors’ demand for US dollar-denominated assets.
The stronger greenback contributed to weaker exports that would be a “notable drag” on growth this year, Fed Chair Janet Yellen said.
Economic expansion has slowed in the US this year and inflation has consistently fallen below the Fed’s 2 percent target. Economists forecast that the consumer price index rose 0.2 percent last month, following a 0.7 percent decline the previous month.
The Fed “can’t ignore the stronger dollar’s implications for growth,” Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG in New York, said by e-mail. “The US dollar’s gains have reached the point where they are willing to indirectly protest dollar strength.”
Fed Bank of Atlanta President Dennis Lockhart said on Friday the central bank should begin raising rates in the middle of this year or later, adding that the stronger dollar changed his view to a modest extent, while it was “not a game changer.”
The US dollar has gained 19 percent in the past year, the best performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro declined 9.1 percent, while the yen was little changed.
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